Solutia bonds gyrate wildly on claims news; Doral bonds head for hibernation; Northwest down

By Stephanie N. Rotondo

Portland, Ore., May 1 - Monday's wide price movement and activity levels in Solutia Inc.'s bonds were nothing compared to what traders reported happened on Tuesday.

The bonds saw heavy trading, not to mention a wide - think Grand Canyon - swing on its price levels.

The movement came as a judge ruled in favor of the St. Louis-based company, allowing Solutia to group its senior debt holders in with the rest of its unsecured creditors.

Meanwhile, Doral Financial Corp., which had competed for headline attention with Solutia on Monday, fell off the radar screen as its debt stalled once again.

The notes, which see a few trades here and there, saw a much more vigorous trading day Monday as the bank released long-awaited refinancing news. But Tuesday was a different story, as the bonds barely traded.

Northwest Airlines Corp. continued to skid off the runway Tuesday, as its debt fell several points across the board. The slide followed in Monday's footsteps, when the company announced that it had lowered its unsecured claims estimate.

Solutia bonds soar, drop

It was Solutia, 2; Stockholders and Bondholders, 0, after a bankruptcy judge ruled in favor of the chemical manufacturer, stating that the company did not improperly refinance debt before filing for Chapter 11 protection in order to avoid securing notes worth $450 million.

The news prompted major movement in the company's 7 3/8% notes due 2027 and its floating-rate notes due 2037. The 7 3/8% notes traded as high as the 108 levels during the day, then fell to close around 85. The floaters were seen topping off in the 106 area, then tumbling down to the 88 bid, 89 offered levels.

JP Morgan Chase Bank NA, lead trustee for $300 million in notes due in 2027 plus $150 million in notes due 2037, sued Solutia on the grounds that the debt should be paid in its entirety. As a result of the ruling, the notes will be paid as unsecured debt - meaning bondholders will only get a partial recovery - when Solutia emerges from reorganization.

The official committee of equity security holders and an ad hoc noteholders committee also lost out on their attempts to quash yet another exclusivity extension request made by Solutia. The judge overseeing the company's bankruptcy case approved the extension, extending the exclusive periods to July 30 and Sept. 28.

In other Solutia news, the court approved a $22.5 million settlement in connection with a lawsuit filed by the company in October 2003 relating to its former Astaris joint venture with FMC Corp. Under the settlement, FMC will pay Solutia $22.5 million in cash, and both parties will release each other from all claims related to this case.

Doral steady, barely trades

Doral's bonds slid back into hibernation after seeing a day of heavy trading Monday.

Reinvigorated refinancing talks spurred Monday's activity, as the company said it was in talks with a private-equity firm that could infuse up to $700 million in the struggling financial institution.

But the San Juan, Puerto Rico-based bank's floating-rate notes saw little, if any, trading come Tuesday, leaving the notes unchanged in the 96.5 levels, according to a trader. The trader also saw the 4¾% preferred paper at 110 bid, 125 offered.

Another trader said he saw the zero-coupon floater due 2007 start at 94 bid, 95 offered a couple of days ago, then get as high as 96 bid, 97 offered. On Tuesday, he saw the notes around 95.5 bid, 97.5 offered.

The trader said he had started watching the name but has since lost interest, noting, "there was no need [to follow them], it never trades. It's not on the radar."

Meanwhile, Tom Carroll, an analyst with Imperial Capital LLC, said some aspects of the potential refinancing are good signs - for example, the settlement of the class-action lawsuit.

Carroll also said that "whoever is buying this [at the price tag of $700 million to $800 million], they are betting they can turn this thing around," he said, adding that it would be good, given that the bank has a "lead market position" in Puerto Rico.

Still, it's a "complicated and complex situation."

"Whoever is under the hood must see something they like," he said. "It might make sense to them."

But, as the deal is not 100% as of yet, the firm "could just as easily walk away at that price."

Whatever the feeling might be on the potential deal, a trader said it could take time to iron things out - and the clock is ticking.

"Forming a bank holding company is not a simple task," he said. "[There is an] extensive FDIC review of [the] folks involved. It will take time.

"Time is not something Doral has. Tick, tick."

Northwest skids

Northwest Airlines' bonds were seen down several points, with a trader quoting the 10% notes due 2009 at 73 bid, 74 offered, down from the previous day's levels in the 77 bid, 79 offered context. He saw the airline's other bonds "in line" with that, with its 8 7/8% notes due 2006 down 3 points at 73 bid, 74 offered, and its 9 7/8% notes due 2007 down 4 points at 75 bid, 76 offered.

At another desk, Northwest Airlines' 7 7/8% notes due 2008 were quoted down 5 points at 73.

The slide followed a similar downside move on Monday, when the bankrupt airline submitted a supplement to its reorganization plan, lowering its estimate of the amount of unsecured claims to $8.2 billion to $8.8 billion from $8.75 billion to $9.50 billion previously.

In other distressed airline paper, a trader heard that recent bankruptcy graduate Delta Air Lines Inc.'s bonds were "still trading" ahead of their equitization, "but not much." He saw the 8.3% notes due 2029 fall to 49.5 bid, 50.5 offered, down from 52.5 bid, 53.5 offered on Monday.

Paul Deckelman contributed to this article.

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