Doral slips; Fedders steady; high hopes boost Solutia; Delta makes credit facility changes

By Stephanie N. Rotondo

Portland, Ore., April 17 - Distressed bond trading seemed to be a little more active Tuesday, despite one trader's lamentation that the day was "uneventful."

Included in the names bandied about Tuesday was Doral Financial Corp., a Puerto Rico-based bank that, according to a source familiar with the name, saw its entire structure slip.

The source could not explain the slip, nor could an analyst who follows the company.

"I don't think that anybody knows what is going on with this one," he said.

Meanwhile, Fedders Corp. continued to be a company on the radar, as players on both sides argued their positions on the Liberty Corner, N.J.-based air quality solutions manufacturer. The bonds closed the day essentially unchanged.

Investors have high hopes that Solutia Inc. will revise its reorganization plan, which, according to one distressed trader, could be why the bonds have seen gains.

As Delta Air Lines Inc. flies closer to the edge of bankruptcy - leaving, not entering - the company announced it had made a few changes to its credit facility. Creditors have given the company the go ahead on its reorganization plan, causing the airline's bonds to take off.

Elsewhere, MagnaChip Semiconductor LLC regained some of the previous day's losses, a trader said, calling the recent price movement "overdone." The chip manufacturer has, of late, seen its bonds dropping continuously.

Doral structure drops

A trader saw the entire Doral structure "slipping" during the trading day, but he could not point to a specific cause for the drop.

The financial institution's floating-rate notes due 2007 closed at 93.5 bid, 94.5 offered, the trader said, while, on the equity side, the stock was down 1 cent, or 0.60%, to close at $1.65. He said the preferred paper was "still hovering around north of 50 cents on the dollar."

While the trader could not explain the movement, an analyst familiar with the name could not either.

Tom Carroll, an analyst with Imperial Capital, said the bank has "gone into Never-Neverland," calling the situation "disconcerting."

Carroll noted that there has been little heard about the company - other than what he called the recent "quasi-sale" of the bank's New York branches - and there has been no word on its refinancing discussions. According to Carroll, there is only 90 days left to refinance the notes.

"I don't know how this deal can be structured," he said.

The analyst said that part of the company's problem is simply location. The Puerto Rico economy has suffered of late, he said, and the U.S. territory's balance sheet is "a mess."

"There was a significant deficit, and instead of cutting spending, [the authorities] raised taxes," he said.

A downturn here on the mainland in the housing sector took its toll on the island as well.

"Their economy lives and dies by ours," he said. "So there's that pressure there."

Overall, Carroll said that, at this point, he was not sure what to think.

"I don't think that anybody knows what's going on with this one," he said.

Fedders steady

Fedders' bonds closed essentially unchanged Tuesday, as one trader called the 9 7/8% notes due 2014 at 45 bid, 47 offered - a market quoted by another trader at Monday's close.

But while the notes may have seen little price movement, market participants are talking about the company.

One buysider disagreed with the notion that the bonds' low value could be attributed to poor management.

"Despite the whining that went on in [a conference call held earlier this month], management is doing everything you would want them to be doing," he said.

He attributes the bonds' poor performance to what he deems "cowboy investors," who are looking for instant gratification. When the bonds failed to satisfy that, they sold.

"That's fine because I've been a buyer," he said.

He also pointed to two recently published buy recommendations on the company: One from RBC Capital Markets and another from Tejas Securities Group Inc.

In its research note, RBC said, "While Fedders is a highly troubled credit, with significant bankruptcy risk, as evidenced by the steep discount on Fedders 9.875% senior notes, we believe there is potential for a turnaround in the next few years. In addition we believe that with the combination of cash, availability under the new credit facility and anticipated asset sales Fedders has the liquidity it needs in the intermediate term.

"We also believe that asset values in the event of a worst-case liquidation scenario would provide senior note holders with significant downside protection."

The recommendation also pointed to measures management has taken to manufacturing efficiency and productivity, as well as liquidity.

According to the report from Tejas Securities Group, "Liquidity at Fedders should be sufficient over the near- to medium-term and allow the company time to execute its operational turnaround."

The report also said that "including coupon payments received and discounting implied recoveries at 20%, we believe the [senior subordinated] notes are attractive at prices less than 63.5% and maintain our buy recommendation based on current prices."

A Gimme Credit LLC report recommended waiting until prices dropped to the 30s, given the company's expected two years of liquidity.

One trader, however, was confused by this notion.

"Why with two years liquidity is [the bond] trading at 20%?" he asked. "I think that's too cheap."

In fact, he said, for reasons of optionality, he thought the bonds should be trading in the 60s, also given that Fedders is a "brand name still worth something."

"It just doesn't make sense," he said.

The trader was also confident that the company "won't be filing soon."

"We'll get at least another coupon out of them," he said.

Solutia up on hope

Expectations of a revised reorganization plan could be boosting Solutia's bonds, a trader said. He said the notes were moving up, with the 7 3/8% notes due 2027 closing at 98.5 bid, 99.5 offered.

The specialty home products producer has been in bankruptcy since December 2003. Its exit from Chapter 11 protection has been delayed by lawsuits filed by the company's bondholders and shareholders. According to an Associated Press article, "Shareholders have complained the reorganization has become 'stagnant' and 'mired in litigation' and have asked a judge to end the company's control of the Chapter 11 process."

Meanwhile, the company has received approval from the bankruptcy court overseeing its case to go ahead with an agreement to acquire Flexsys, as well as its Japanese Crystex business.

Delta changes credit facility

Distressed airline Delta made some changes to its credit facility, including moving some funds out of its second-lien term loan and into its first-lien term loan, lowering pricing on the second-lien loan and firming up pricing at the low end of talk on the first-lien tranches.

The seven-year second-lien term loan B (B-) is now sized at $900 million, down from $1 billion, and pricing was reduced to Libor plus 325 bps from original talk at launch of Libor plus 350 bps, the source said.

On the flip side, the five-year first-lien term loan A (B+) is now sized at $600 million, up from $500 million, and pricing firmed up at Libor plus 200 bps, the low end of original guidance of Libor plus 200 bps to 225 bps, the source continued.

Lastly, pricing on the $1 billion five-year revolver (B+) - size unchanged - also finalized at Libor plus 200 bps, the low end of original guidance of Libor plus 200 bps to 225 bps, the source added.

JPMorgan, Goldman Sachs, Merrill Lynch, Lehman Brothers, UBS and Barclays Capital are the lead banks on the $2.5 billion exit financing credit facility, which was way oversubscribed, with JPMorgan the left lead on the first-lien debt and Goldman Sachs the left lead on the second-lien debt.

Security will be substantially all of the first-priority collateral in the existing debtor-in-possession facility.

Proceeds will be used to repay the Atlanta-based airline's $2.1 billion DIP facility led by GE Capital and American Express, to make other payments required upon exit from bankruptcy and to increase its cash balance.

Delta flies toward bankruptcy exit

Delta's bonds were seen "better" by a distressed trader, who quoted the 8.3% notes due 2029 at 60.25 bid, 60.75 offered. According to another market source, the bonds are moving in the 60.5 levels, up from the previous day's closing mark of 59.

Standard & Poor's said on Monday that it was keeping its default corporate credit rating on the airline, despite overwhelming creditor support for the company's proposed reorganization plan.

The agency did note, however, that it expects to assign a "highly speculative" or "B" rating on the company once it emerges from bankruptcy. The airline has said it is aiming for an April 30 emergence.

In other distressed airline paper, Northwest Airlines Corp. was also called better. The trader saw the 10% notes due 2009 at 89.25 bid, 90.25 offered. A market source said the bonds closed Monday at 88.5.

MagnaChip regains losses

MagnaChip's bonds were back up from Monday's lows, a trader said. He called the 8% notes due 2014 at 58 bid, 59.5 offered, while the floating-rate notes came in at 83.5 bid, 84.5 offered.

"I think yesterday's price action got a bit overdone," he said when asked how he accounted for the gains.

The Seoul, Korea-based chip maker has fallen continuously over the last couple of months. Traders were first concerned with a lack of reported earnings and then worried about less-than-stellar figures for 2006. The company also has been hit with a weakening industry index, as well as squeezes from inside the industry to lower costs.

First-quarter earnings for 2007 are expected next week.

Sara Rosenberg contributed to this article.

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