Northwest Airlines' bonds rally; Federal-Mogul better; Tembec notes mixed on earnings

By Stephanie N. Rotondo

Portland, Ore., May 3 - Northwest Airlines Corp.'s bonds were flying to higher ground Thursday, though it was not clear what prompted the gains.

On Wednesday, the airline said it had come to an agreement with its bondholders, clearing the runway for takeoff out of bankruptcy. The company is making its way toward a bankruptcy exit, following in the footsteps of fellow distressed airline Delta Air Lines Inc. A trader said that Delta's bonds were "basically gone, so [they] didn't matter."

Meanwhile, Federal-Mogul Corp. is also looking to exit Chapter 11 protection soon. Its bonds, which all trade in line with each other, were seen about a point better on the day.

A narrower second-quarter loss did not help forest products company Tembec Industries Inc. Still, the Canadian company's bonds were mixed, as one issue was deemed unchanged and the other two fell a couple of points.

Northwest Airlines notes rally

A trader said Northwest Airlines' bonds "rallied up 2 points" as the whole airline sector bounced, while another trader saw the notes up as much as 4 points but he could not explain why.

"They are up a little from the lows they had hit," the second trader said.

The trader quoted the 10% notes due 2009 at 79. Another market source pegged the notes at 78.5, up from the previous day's level of 74. The source also saw the 9 7/8% notes due 2007 up 3 points at 79, while the 7 7/8% notes due 2008 closed almost 3 points better at 76.

Elsewhere, a trader said that Northwest's bonds "were on a roller coaster," quoting the 10% notes as having opened the session at 74 bid, 75 offered, then having fallen to 71 bid, 73 offered, and then "were up four after being down by three," ending the session at 78 bid, 80 offered.

Another trader also saw the 10s at 78 bid, 79 offered, which he called up 3 points on the day, saying that the bankrupt airline operator's bonds were up on "progress in reorganizing the company."

Another source called its 7 7/8% notes up 3 points at 77 bid.

The Eagan, Minn.-based airline announced Wednesday that it had resolved all outstanding issues with the ad hoc committee of certain claims holders relating to the company's reorganization plan. The airline said it would file a supplement to its plan, which includes the details of the agreements reached with the committee. In turn, the committee said it would support the plan at a confirmation hearing on May 16.

A trader also saw Delta bond stubs continuing to trade.

"Everyone got stock [for their old bonds], but the stubs [which could mean additional payment for their holders] are still left." He saw them trading at 7 bid, 7.5 offered, up from 5.625 on Wednesday.

Federal-Mogul better

Distressed automotive parts manufacturer Federal-Mogul saw its bonds get about a point better during trading, a market participant said.

The Southfield, Mich.-based company is driving its way out of bankruptcy with a confirmation hearing scheduled for Tuesday. The company has been laboring under Chapter 11 protection since October 2001.

According to Federal-Mogul's web site, the fourth amended plan of reorganization was approved on Feb. 2. The site also states that the plan was proposed jointly by the company, the unsecured creditors committee, the asbestos claimants committee, the future asbestos claimants representative, the agent for the prepetition bank lenders and the equity committee and also has the support of the asbestos property damage committee and the ad hoc committee of unsecured creditors.

In the rest of the autosphere, Dura Automotive's 8 5/8% notes due 2012, after sliding on Wednesday, recovered some of the lost ground, moving up to 32.5 bid, 34.5 offered from 31 bid, 33 offered, while its 9% notes due 2009 were seen up 0.25 point at 6.25 bid, 7.25 offered.

Tembec bonds mixed on earnings

Forest products company Tembec, whose bonds were active in the morning according to a distressed bond trader, saw its notes mixed come market close.

The trader quoted the 7¾% notes due 2012 "kind of unchanged" at 53 bid, 54 offered, on "pretty good volume." The 8½% notes due 2011 were called "down a couple of points" at 54.25, while the 8 5/8% notes due 2009 lost a point, closing at 61.5.

A market source placed the 8½% notes down just over a point at 54.25, while the 7¾% notes fell 1.5 points to 54.

At another desk, a trader saw Tembec's bonds recover from early losses to end about unchanged. He saw its 8 5/8% issue open at 60 bid, 62 offered, drop as low as 58 bid, 60 offered, and then bounce back to 60 bid, 62 offered.

Tembec, another trader said, "was very volatile, going up and down." At his shop, the 8 5/8s were pegged at having opened at 62 bid, 63 offered, then having fallen as low as 57.625, before rebounding to finish at 61 bid, 62 offered, which he called down just a point.

Its 8½% notes due 2011 were seen down half a point on the day at 55.

The Montreal-based company posted a narrower second-quarter loss Thursday, boosted by an after-tax gain relating to translation of foreign debt.

For the quarter ended March 31, Tembec posted a loss of C$45 million, compared to a loss of C$168 million for the same quarter a year previous. The after-tax gain amounted to C$10 million. Without the gain and other special items, the company said it would have lost C$58 million.

"Better margins are anticipated in the coming quarters as market pulp prices remain strong and we expect some improvement in lumber prices, albeit from a low level," the company said in a statement.

MagnaChip up

A trader saw MagnaChip Semiconductor LLC's bonds continuing their rise of the past few sessions, although he did not know why they were lately doing so well, with the floating-rate notes moving up to 89.75 bid, 90.75 offered from 89 bid, 90 offered previously; its 6 7/8% notes due 2011 rising to 86.75 bid, 87.75 offered from 84 bid, 86 offered, while its 8% notes due 2011 at 69 bid, 70 offered from 67 bid, 69 offered.

Broad market firm

A trader saw Doral Financial Corp.'s floating-rate notes holding steady in the 96 bid, 97 offered levels.

The trader also said that Solutia Inc.'s bonds were firming, after getting hit hard earlier in the week. He said the senior debt, the 11¼% notes due 2009, was moving in the 102 levels, while the unsecured debt, the 7 3/8% notes due 2027 and the floating-rate notes due 2037, were trading around 88.

Le-Nature's Inc.'s 9% notes due 2013 dipped to 39 bid, 42 offered from 40 bid, 43 offered.

Movie Gallery Inc.'s 11% notes due 2012 continued to slide, falling as low as 81 bid, 83 offered from prior levels at 86 bid, 87 offered, then bouncing back to 84 bid, 86 offered.

A trader saw Spectrum Brands' 11¼% notes due 2013 jump to 94 bid, 95 offered and its 7 3/8% notes due 2015 firm to 80 bid, 81 offered, up a point.

Another trader who saw similar levels attributed the rise to "a rumor that they might sell off their battery division."

Aveta loan steady

Aveta Inc.'s term loan continued to trade around 85 on Thursday after falling to that context on a not-too-positive lender call that was held during the previous session, according to a trader.

Essentially, lenders were told on Wednesday that the company's Puerto Rico business "is not doing so hot" and that "it's going to need money," the trader said.

Following this update, Aveta's term loan dropped all the way from the low-90's context to the mid-80's, the trader added.

Aveta is a Fort Lee, N.J., for-profit company focused on Medicare Advantage and the health care needs of the chronically ill.

Sara Rosenberg and Paul Deckelman contributed to this article.

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