Federal-Mogul gains; Delta lower; Adelphia up; Solutia lifted; Movie lower; Calpine slides; Tembec up

By Ronda Fears

Memphis, Jan. 3 - It was a more active market for distressed bonds Wednesday but the first full day of trading in the New Year still wasn't anything to rave about, traders said, thus making it difficult to gauge the overall market. And it was rather a mixed bag with some notable declines, such as the Delta Air Lines Inc. bonds even in the face of falling oil prices.

"I guess it's hard for folks to shift gears back to business after the holidays," remarked one trader.

Another lamented the lack of any news as a catalyst to moving distressed paper.

"Everything was higher this morning with stocks," the latter trader remarked. "Then everything faded with the stocks. The euphoria just faded."

That noted, a huge slide in oil prices was a headline grabber but failed to move airline bonds higher, although the respective stocks soared on the event. Crude for February delivery fell $2.73 to $58.32 a barrel, the lowest price in about six weeks, on the New York Mercantile Exchange.

Delta bonds, however, were off about 1.5 points, and several traders queried about the move said they were stumped. One trader noted, too, that there was not a big sell-off in the bonds.

"It could be a little profit taking or something like that; it wasn't like there was a big dump or unloading," the trader said of the action in Delta bonds Wednesday.

Delta's most active bonds opened Wednesday at 66.5 bid, 67.5 offered, about where they went out after Tuesday's short session, another trader said, but the paper was closing out Wednesday at 65 bid, 65.5 offered.

Otherwise, it also was noted the trial is about to resume in the case of bankrupt Iridium LLC creditors versus former backer and majority owner of the satellite telecom venture, Motorola Inc. The bonds are still in the 30 context, or a touch softer, where they have been hovering over the past few weeks since the trial began in December.

Federal-Mogul goes to 76

To the upside, one of the big gainers of the session was Federal-Mogul Corp., moving on follow-through optimism about the Southfield, Mich.-based aftermarket auto parts maker's progress in emerging bankruptcy soon.

Traders pegged Federal-Mogul paper at 76 bid, 76.5 offered at the close, and one trader noted that paper has moved up from the 70 area just two weeks ago.

Federal-Mogul's bankruptcy, filed in October 2001, has been mired and drawn out by a mound of asbestos claims, past and future. On Nov. 20, the company filed its fourth joint amended plan of reorganization, which incorporates new provisions for the settlement of claims filed against debtor affiliates in the United Kingdom.

A bankruptcy court hearing is scheduled for Feb. 2 on the new and latest plan. Objections are to be filed by Jan. 10.

Calpine off in light trade

Moving lower, Calpine Corp. paper was weaker Wednesday, but traders noted that not a lot of the bonds traded, as typically was the case in the broader distressed market.

One trader said Calpine bonds got a hit on some low bids, losing about a half point, and another trader characterized the slim number of trades as probably profit taking. The junior bonds were described as going out Wednesday at 79.5, or a little softer.

"There are a couple of different scenarios that are interesting out there," said a buyside market source.

"I am not talking about the buyout rumors, which I think is a little ahead of itself, but if you look at the move in the stock, which just keeps going up, then you have to think there is some value in the argument that the company's plan is going to have a big equity commitment from somewhere."

He said he was a buyer of Calpine's unsecured bonds at or below 80 and a buyer for the stock anywhere under $3. Calpine's Pink Sheets traded shares Wednesday gained nearly 4% to close at $1.14.

Calpine bank debt better

Meanwhile, Calpine's second-lien bank paper was stronger on Wednesday as the power sector as a whole felt better, according to a trader in the bank debt market.

The second-lien paper closed the day at 114.5 bid, 115.5 offered, up half a point from previous levels, the trader said.

Calpine is a San Jose, Calif.-based independent power producer.

Adelphia up on plan approval

Seeing maybe the most action of the session, Adelphia Communications Corp. bonds were described as better by about a point as the path to exiting bankruptcy appears to have cleared up with approval of its latest reorganization plan despite continued objections.

On Wednesday, U.S. bankruptcy judge Robert Gerber said the company's plan secured the approval of creditors that account for 84% of the claims it owed, clearing the way for the company to exit bankruptcy proceedings.

That came in spite of a court filing Tuesday by Adelphia bondholders objecting to the company's proposed changes to its fifth amended plan of reorganization, asking the court to deny plan confirmation or force the company to re-solicit votes of all creditors.

Greenwood Village, Colo.-based Adelphia, previously one of the biggest cable companies in the United States, filed bankruptcy in June 2002 in the wake of an accounting scandal that ultimately resulted in the conviction of founder John Rigas and members of the Rigas family.

Since filing Chapter 11, its cable assets have been sold to Time Warner Inc. and Comcast Corp., and it will be winding down its remaining operations as it exits bankruptcy.

According to the bondholders' objection, other than announcements in open court and filings, no notice has been given to Adelphia creditors of the proposed plan modifications, which adversely impact their recoveries. While the bondholder group said it actively participated in the confirmation hearing as an objecting party and made clear that each of its members voted to reject the plan, other creditors have not been similarly involved.

Before the holidays, Adelphia Communications said it anticipated a delay in its reorganization proceedings.

Tembec bonds gain a point

In another rise, the bonds of Canadian forest products company Tembec Inc. were said to be higher Wednesday by about a point. While traders were at a loss to qualify the move, a buyside source said he figured there was interest in the company as a reorganized player in the north-of-the-border timber industry.

"More weakness is expected in the Canadian forestry sector, so Tembec's reorganization is ahead of the pack," the New York-based fixed-income fund manager said.

"That makes Tembec more appealing as a player when they exit bankruptcy, you see."

He said there have been several recent reports speculating of further upheaval in the Canadian timber industry in 2007, on top of a rough year in 2006 that resulted in lots of job losses and the closure or idling of dozens of mills.

A strong Canadian dollar, rising fuel costs, falling lumber prices, a soft housing market and a dwindling supply of raw timber assets will continue to take a toll on the industry, he said. But, he noted that forestry analysts are expecting the malaise will be less dramatic in 2007.

"They're also predicting a leaner industry, though, and Tembec is out front with that," he added.

Solutia lifted on new plan

Solutia Inc. bonds were lifted Wednesday, traders said, but the paper didn't move past the 98 mark seen the day before on revisions to its disputed reorganization plan that will boost recovery estimates for the bonds.

Caesar Silvestro, fixed-income analyst at Samco Capital Markets in New York, said the St. Louis-based specialty chemicals maker's changes were very good for bondholders, moving estimated recovery levels to around 80% from 48% to 56% in its original reorganization plan.

In addition, the new plan gives Solutia bondholders priority status over other general unsecured claims, he said. Another major point of the changes, he added, was a reduction in former parent Monsanto Inc.'s percentage of post-bankruptcy Solutia equity, reducing it to 15.7% from a previous 30%, excluding any participation in the rights offering.

Stockholders will see some recovery in the new plan, as well, whereas the original plan provided for no pay-out to the equity class.

Solutia ups DIP add-on size

Also of note, Solutia has increased the size of its proposed debtor-in-possession term loan add-on ahead of the deal's Thursday bank meeting as opposed to having an accordion feature under the tranche.

The term loan add-on will now be presented to lenders with a size of $325 million, up from an originally proposed size of $175 million, making the previously contemplated $150 million accordion feature no longer necessary, according to a market source.

Pricing on the term loan add-on is talked at Libor plus 350 bps, in line with pricing on the company's existing $650 million of term loan debt, the source remarked.

In addition to the term loan add-on, the company also is going to launch a $75 million revolver add-on that is talked at Libor plus 225 bps, in line with pricing on the company's existing $175 million DIP revolver.

Proceeds are earmarked for the acquisition of Akzo Nobel's stake in Flexsys, the 50% joint venture between Akzo Nobel and Solutia, and provide the company with further liquidity for operations and the ability to fund mandatory pension payments that come due in 2007.

The now eliminated $150 million term loan accordion feature was always intended to help facilitate the acquisition.

At the launch, the company will also be asking lenders to extend the maturity on its entire DIP facility by one year to March 31, 2008 and allow for the acquisition.

Movie skids on Blockbuster

In another big decliner, one trader said Movie Gallery Inc. bonds fell 2 to 3 points to the 74.5 area Wednesday on the heels of rival Blockbuster Inc. reporting that it met its 2006 goal for online movie rentals.

"As online continues to steal share from the in-store market, it will be increasingly difficult for Movie Gallery to generate decent returns from its stores. Bondholders would be best served by cashing out now," the trader said.

"But as I've stated many times, whether bondholders choose to force default or force dilution, Movie Gallery has got to do something pretty soon."

On Wednesday, Blockbuster credited a new program, Blockbuster Total Access, which the Dallas-based movie rental chain launched Nov. 1, for helping it reach its 2006 goal of 2.2 million paying subscribers to its online rental service.

On top of that, the trader said the market is anticipating Netflix Inc. subscriptions will approximate 6.3 million at year-end 2006, and Apple Computer Inc. is launching an online movie access service.

"So you're already looking at 8.5 million online subscribers as of the end of fourth quarter. Importantly, the online market stood at 5.4 million subscribers as of the end of fourth-quarter 2005. So the market has grown by nearly 60% year over year and continues to grow rapidly," the trader said.

"Movie Gallery has been fighting this, trying to downplay online competition, but it's very real."

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