Dura loan widens out; auto bonds firmer with Delphi; Salton jumps

By Paul Deckelman and Sara Rosenberg

New York, Oct. 23 - Dura Automotive Systems, Inc.'s second-lien term loan saw levels widen out a bit as the offer side headed higher on Monday. The troubled Rochester Hills, Mich.-based automotive parts maker's bonds, meantime, were seen continuing to firm, continuing their own momentum from last week and being lifted, along with other auto names, as buyout buzz made the rounds about bankrupt Troy, Mich.-based automotive parts maker Delphi Corp.

Among the other names seen getting a boost from the Delphi developments were those of the bankrupt Toledo, Ohio-based auto components maker Dana Corp.

Elsewhere in the autosphere, there was little negative fallout in the sector to Ford Motor Co.'s announcement that the Number-Two domestic carmaker had lost a yawning $5.8 billion in the recently completed third-quarter - Dearborn, Mich.-based Ford's parking lot full of red ink having been expected and fairly accurately estimated by the financial markets. However, Ford's statement that it may consider issuing secured debt to meet funding needs met with a cool reception from the major ratings agencies.

Outside of the autos, Salton Inc.'s bonds were described by several traders as the day's big movers, jumping some 10 points on news that the Lake Forest, Ill.-based small appliance maker said that it would consider a possible sale or merger of the company.

Dura loans wider

In the bank debt market, Dura's second-lien term loan closed out the day Monday at 85 bid, 87 offered compared with Friday's closing levels of 85 bid, 86 offered, a trader said.

On Friday, that bank debt had moved up into the mid-80's from the low-80's, as speculation on a potential debtor-in-possession financing worked its way through the market. According to the rumors, the company is looking at JPMorgan or Bank of America to lead DIP financing if it files for bankruptcy.

But Dana bonds better

In the junk bond market, a trader saw Dura's 8 5/8% senior notes due 2012 a point better at 34 bid, 35 offered. He also saw the company's 9% subordinated notes due 2009 half a point better at 7.5 bid, 8.5 offered.

The two series of bonds have been moving up steadily from the lows - around 28 for the seniors and about 1½ for the juniors - which they hit on Monday of last week [Oct. 16], when the bonds began trading flat, or without their accrued interest, after the company failed to make the $17.25 million scheduled coupon interest payment on those notes, sparking a renewal of market bankruptcy rumors.

Dura instead invoked the standard 30-day grace period, during which time it is expected to negotiate with its bondholders in an effort to avoid an official default and a slide into bankruptcy.

Strength from Delphi

In addition to its own momentum, traders said the Dura bonds improved in line with an overall better tone in the autos sector, after M&A speculation pushed Delphi's bonds higher; one market source called it "pretty much at least a point across the board."

A trader said its 6.55% notes that were to have matured earlier this year moved up to 101 bid, 102, while its 6½% notes due 2009 rose to par bid, 101 offered, its 6½% notes due 2013 to 95 bid, 96 offered, and its 7 1/8% notes due 2029 to 92 bid, 93 offered.

The bonds rose - along with Delphi's Pink Sheets-traded shares, up 21 cents (8.71%) to $2.62, on volume of 12 million shares, more than triple the norm - after The Wall Street Journal reported over the weekend that Ripplewood Holdings LLC is preparing a likely bid for the bankrupt auto parts maker that could top $10 billion.

The paper reported that the buyout specialist's effort is being led by a former Chrysler Corp. president, Thomas Stallkamp, who is now a partner with the New York-based investment company. Neither Stallkamp nor Delphi would comment on the Journal's report.

The paper further said that although Ripplewood is considering a bid for the whole company, it might still just make a bid for part of it.

Ripplewood is the latest of several presumed possible suitors for Delphi who have emerged in the media over the last few months; other reports have linked Delphi with private equity group Cerberus Capital Management LP, and hedge fund Appaloosa Management, which owns a 9.3% Delphi stake.

Ripple effect in auto sector

The news that Ripplewood is apparently preparing to make a bid for some or all of troubled Delphi translated into a generally firmer tone among the other automotive names, traders said, particularly Dana. One characterized the latter company's bonds as up "dramatically," with its 6½% notes due 2008 up as much as 2¾ points at 74.75 bid, 75 offered.

Another said that Dana was up "even more than Delphi," seeing both the 2008 6½% notes and the company's 6½% notes due 2009 two points better at 75 bid, 76 offered.

Also seen better was former Delphi parent company General Motors Corp., whose benchmark 8 3/8% notes due 2033 were up ½ point at 87.75 bid, 88.75 offered. GM is helping its problem child - spun off in 1999 - to pay for buyouts and early retirement incentives as Delphi tries to trim its workforce to bring its costs more into line with its lower sales. GM is also taking part in three-way talks with Delphi and the United Auto Workers union, aimed at reaching a consensus agreement on drastically lowering Delphi's bloated hourly labor costs. GM hopes to thus deter Delphi from taking any unilateral action to impose a new salary and benefits structure on its unionized workers, which might produce a potentially ruinous strike at Delphi - GM's single largest parts supplier.

A trader saw Remy International Inc.'s bonds continuing on the comeback trail that saw the Anderson, Ind.-based automotive electronics part maker's bonds fall badly at the start of last week, but then rebound strongly the last couple of sessions.

Remy's bonds had swooned badly on bankruptcy speculation surrounding its hiring of an advisor to help it on asset allocations, but were heard to have come back when the bankruptcy predictions did not pan out.

In Monday's dealings, Remy's 8 5/8% notes due 2007 moved up 2 points to 89 bid, 91 offered, while its 11% notes due 2009 advanced to 46 bid, 47 offered.

Ford steady amid losses

Elsewhere in autoland, Ford Motor Co.'s bonds were seen steady to perhaps even a bit higher, investors shrugging off the news that the second-largest domestic carmaker lost $5.8 billion ($3.08 per share) in the third quarter, a much steeper loss than its year-earlier loss of $2.84 million (15 cents per share).

Analysts said that as scary as those huge numbers are, the latest quarter's mega-loss mostly consisted of $4.6 billion ($2.46 per share) in special charges; without those charges, the company's continuing operations loss of 62 cents was about in line with Wall Street's expectations.

Ford has been beset so far this year with higher raw materials costs and a steep falloff in sales, particularly its higher-margin sport utility vehicles. The company is in the midst of an ambitious turnaround plan, dubbed "Way Forward," which involves the closure of more than a dozen facilities over the next few years and tens of thousands of job cuts. Both most of the anticipated savings won't be realized for several years yet.

In the interim, Moody's Investors Service noted, "even if things go according to plan," in terms of Ford hitting its cost reduction, market share and new-product introduction objectives, "Ford will likely burn through a significant amount of cash during 2006 and 2007. The rate of cash consumption could improve in 2008, but cash flow could still be negative in that year."

Ford said that it would consider accessing the secured debt market in order to bolster its cash position. Moody's lead auto industry analyst, Bruce Clark, said that "given the extended time frame of the Way Forward restructuring plan and the level of cash that may be required through 2008, it will be important for Ford to increase its cash position in order to provide an adequate liquidity cushion.

"If Ford can't boost its liquidity through accessing the secured debt market, through asset sales or through some other strategic alternatives, there could be further pressure on its long-term and SGL ratings." Even assuming that Ford will be able to issue secured debt, Clark said, "the rating of the company's unsecured obligations would be subject to a downgrade from current levels."

Fitch Ratings also warned that it might cut the rating on Ford's unsecured bonds, which would be structurally subordinated to any new secured debt that the company issues.

Salton soars on sale speculation

Apart from the autos, Salton "was definitely the big mover," a trader said, quoting the company's 12¼% notes due 2008 at 91 bid - a gain of fully 10 points on the session and "almost 20 points from where they were on Thursday," when the notes were seen hanging around the lower 70s. Several other traders also pegged the bonds around a 91 context.

The bonds got a two-step boost in trading Friday and Monday when a large shareholder suggested that it combine with one of its competitors - and Salton responded by saying it might consider a sale or merger transaction.

Harbinger Capital Partners started the M&A talk last week when it wrote to Salton's board of directors, suggesting that Salton - which has struggled with heavy debt, slower-than-anticipated sales in some markets and higher raw materials costs - might benefit from a combination with competitor Applica Inc., which last Thursday agreed to be bought out for $88 million by Harbinger Capital, its largest shareholder. Harbinger is also a big Salton shareholder, its 30,000 shares of preferred stock eligible to be converted into a 15% stake in Salton common.

In its letter to Salton touting the benefits of a link-up with Applica, Harbinger declared that "we are enthusiastic about the small household appliance market and believe that a combination of Salton and Applica is compelling." It asked for access to Salton's books to conduct due diligence.

That was enough to push the bonds up to closing levels Friday around 81 bid from prior levels in the lower 70s.

Salton at that time had no public comment - but it said early Monday that it has hired Houlihan Lokey Howard & Zukin Capital Inc. as an advisor as it evaluates various strategic alternatives, possibly even including the outright sale of the company.

That news caused the bonds to gain another 10 points, traders said.

Salton said that the strategic review was needed because of consolidation in the small-appliances market, as well as overtures from potential suitors.

Salton separately announced that it had appointed Jason Mudrick to its board - a former Merrill Lynch & Co. M&A specialist who is now a portfolio manager at another major Salton shareholder, Contrarian Capital Management LLC, which owns 2.6 million shares, or about 18% of the outstanding float.

Those twin moves caused Salton's New York Stock Exchange-traded shares to shoot up 58 cents (24.68%) to $2.93 in Monday's dealings. Volume of 918.000 shares was about 15 times the usual turnover.

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