Tembec active, recovers early losses on results; Delphi steady as deadline passes; Dura steadies

By Stephanie N. Rotondo

Portland, Ore., Feb. 1 - Tembec Inc. saw "a good amount of trading" in its bonds Thursday as the company posted first quarter results.

The figures showed a positive earnings profile for the company's first quarter compared to a loss in the previous quarter.

Delphi Corp. was virtually unchanged as talks with General Motors Corp. and labor unions dragged past the investment group-imposed deadline of Jan. 31. Delphi said progress is being made, but is keeping mum on the details.

After a wild day, Dura Automotive Systems Inc. leveled off, according to traders. The company saw its bonds up about a point, regaining some of the 5 points lost on Wednesday.

As merger talks quiet down and investors digest the news, bankrupt airlines Delta Air Lines Inc. and Northwest Airlines Corp. edged higher in trading. Delta also saw a spike in its stock, attributed to a Forbes online article predicting Delta will be in play once again when it emerges from Chapter 11 protection. Delta shares (Pink Sheets: DALRQ) gained 7 cents, or 6.48%, to $1.15.

Tembec steady on earnings

Amid a good earnings report, Tembec bonds were seen lower at the beginning of the day, but gained momentum in afternoon trading. A trader said the company's 8 5/8% notes due 2009 were at 84 bid, 86 offered, its 8½% notes due 2011 at 74 bid, 76 offered and its 7¾% notes due 2012 at 72 bid, 74 offered, all up 2 points. At another desk, a trader saw the 8 5/8s up 2 points on the session at 87 bid, 88 offered, the 73/4s up 3 points at 75 bid, 76 offered, and the 8½% notes at 76 bid, 77 offered, up a point.

The Montreal-based company posted net earnings of C$138 million for the first fiscal quarter ending Dec. 31, compared to a net loss of C$75 million the same quarter of the previous year, and a net loss of C$54 million the previous quarter.

Consolidated sales from the company's divisions, which include pulp and paper, chemicals and forest products, were down slightly at C$724 million from the previous year's total of C$789 million. According to the company-issued press release, EBITDA was C$13 million, as compared to negative EBITDA of C$32 million a year ago and EBITDA of C$30 million in the prior quarter.

The press release also sated that the quarterly results included an after-tax gain of C$185 million stemming from a refund of lumber duties and related interest.

Tembec has seen profit taking for much of the week, pushing the bonds lower. Previously, the bonds had been on an upward path on weakness of the Canadian dollar and sector strength following the Abitibi Consolidated Inc.-Bowater Inc. merger announcement.

Delphi steady

Delphi's bonds saw little change as talks with its former parent GM and labor unions passed an investment group-imposed deadline of Wednesday.

The investment group, led by Cerberus Capital Management LP and Appaloosa Management LP, agreed to invest $3.4 billion into the bankrupt auto parts supplier, but the agreement was contingent on the company coming to terms with GM and the United Auto Workers unions. The union has said it will not work on deadlines set by the company, as they were made without union input.

At the heart of the discussions are proposed wage and benefit cuts. Delphi has said the current wages and benefits are above industry average and the cuts were essential to the company's survival. Delphi plans to cut four-fifths of its domestic hourly workers, 21 of 29 domestic union plants, several overseas plants and thousands of salaried workers.

As the deadline passed without much fanfare or indication on either side as to the direction the groups were headed, a Delphi spokesperson said the agreement to go forward was "implicit."

"We have not reached consensual settlements," said Claudia Piccinin, spokesperson for Delphi, told Prospect News Thursday. She said that while there has been no formal agreement to continue the talks, the groups are still discussing the "complicated issues" and "continuing to make progress."

Piccinin did not indicate what kind of progress was being made, but wire reports have said talks are to continue through February. A Reuters report said the company will convene "intensive contract talks" with the International Union of Electrical Workers-Communications Workers of America on Feb. 12.

In its drive toward Chapter 11 emergence, Delphi announced Tuesday it had selected a leading bidder for its Delphi Steering Unit. In an effort to cut costs, the company is looking to sell some its non-core businesses. Los Angeles-based Platinum Equity LLC offered $560 million for the steering and halfshaft unit in equity, loans and a revolving credit line. Delphi's steering business had revenue of about $3.2 billion in 2005.

On Wednesday, the company posted a $358 million operating loss and a $461 million net loss for December and a $5.12 billion net loss for 2006, according to a filing with the bankruptcy court overseeing the case. The company also reported net sales in 2006 at $17.17 billion for units under court protection. Its international businesses were not included in the filing.

Dura stabilizes

Dura saw some stabilizing of its bonds after getting "whacked" on the news that a major holder of its debt was liquidating its assets (Federated Investors, Inc. denied the widespread market talk Wednesday that it was the account. The actual firm involved could not be determined.) The traders saw the 8 5/8% notes due 2012 - which nosedived about 5 points in trading Wednesday after poor numbers - up about a point or so from those Wednesday closing levels, firming to 32 bid, 34 offered.

The company's reported operating loss of $1.95 million for December had put pressure on the bonds Tuesday, though still showed an improvement from an operating loss of $12.01 million in November. The net loss for December was $20.02 million, improved from a $38.23 million November net loss, with an uptick in sales to $80.6 million from $70.3 million.

Cash was the key issue in the latest report, however, according to another trader. The Rochester Hills, Mich.-based company reported that cash and equivalents at Dec. 31 plunged to $14.88 million from $54.2 million a month before.

The automotive parts maker filed for bankruptcy in October 2006.

Delta, Northwest up

A trader in distressed bonds saw Delta's bonds about a point better Thursday, with the market having digested Wednesday's news that US Airways Group Inc. has abandoned its efforts to acquire the bankrupt Atlanta-based airline operator - a big victory for Delta's management, which all along said it planned to restructure Delta and then emerge as a standalone company.

He saw Delta's benchmark 8.30% notes due 2029 at 62 bid, 63 offered, up a point, and also saw bankrupt Delta rival Northwest - whose bonds had recently been lifted by airline industry merger and acquisition speculation sparked by the US Air run at Delta - also a point better, at 94 bid, 96 offered for the Eagan, Minn.-based airline operator's 10% notes due 2009.

UAL DIP breaks

Meanwhile in the bank loan market, a source said that the UAL Corp. DIP loan broke for trading and was seen changing hands 100.375 bid, 100.625 offered.

Earlier in the week UAL cut the spread on the $1.8 billion term loan B to Libor plus 200 bps from original talk at launch of Libor plus 225 bps.

The source notes that this compares with Libor plus 375 bps on the existing DIP that is being refinanced.

The company's $2.1 billion credit facility (B1/B+) also includes a $300 million five-year revolver.

The overall size is smaller than the old $2.2 billion DIP.

JPMorgan is the lead bank on the deal that will be used to refinance the Elk Grove Township, Ill., airline's existing credit facility.

Wolverine wows market

Back among the bonds, Wolverine Tube Inc. was a "big winner" on the session, a trader said, with its 7 3/8% senior notes due 2008 around 95 - well up from the prior levels around 84 bid, 85 offered to which those bonds had sank last week following "a very negative report" on the company issued by the investment bank Miller Tabak & Co. LLC. The 7 3/8s, the trader said "don't trade terribly often, unfortunately." Wolverine's 10½% senior notes due 2009 meantime, traded up to the 96-97 area, well above Wednesday's 84.5 bid, 86.5 offered.

Wolverine's Pink Sheet-traded shares were meantime up 99 cents (119.28%) to $1.82. Volume of about 400,000 shares was some eight times the usual level.

Wolverine announced that an investor group comprised of Plainfield Special Situations Master Fund Ltd. and The Alpine Group, Inc. will pump up to $75 million into the company by purchasing new series A convertible preferred equity and providing a standby commitment to a common stock rights offering to be made to all Wolverine shareholders, which could raise up to $51.1 million. Wolverine will also make an offer to exchange and modify the terms of its existing debt, offering to exchange new debt for its existing 7 3/8% notes.

The new exchange notes will be similar to its existing 10½% notes, but with less restrictive covenants. Plainfield and Alpine have agreed to tender at least $25 million of the 7 3/8s they now hold into the exchange offer.

If the participation of Wolverine's stockholders in the rights offering would cause Plainfield and Alpine to own less than 55% of the company on a fully diluted, as-converted basis, Plainfield and Alpine have an option to purchase additional shares of the series A preferred stock at the same price offered to the other shareholders under the rights offering to bring their collective ownership to 55% on a fully diluted, as-converted basis.

The two investors will also name four of the company's seven members of its board of directors.

"So they get some cash," the trader said, "they get the promise of some [more] cash, and they'll try to push out the debt maturities and they're basically getting new management.

"It's a lot of changes."

James River jumps despite sale delay

The trader saw James River Coal Co.'s 9 3/8% notes due 2012 "significantly better" - even after the Richmond, Va.-based coal producer announced that the pending $24.4 million sale of its Bell County Coal Corp. subsidiary has been temporarily delayed.

The bonds were trading between 88 bid and 89 offered "in round lot size all day" - well up from Wednesday's levels at 82.375 bid, 83 offfered,

James River said the unit's prospective buyer, Weston Holdings Inc. confirmed its intent to complete the transaction on the original terms and has said acceptable financing has been obtained, but requested an extension, which James River granted.

The closing is now expected to occur before Feb. 28.

Investors also shrugged off the announcement by Moody's Investors Service that it had downgraded James River Coal's corporate family and probability-of-default ratings to Caa2 from Caa1 and its senior unsecured rating to Caa3 from Caa2, while affirming the company's B1 senior secured rating and SGL-4 speculative grade liquidity rating.

In also putting the ratings under review for a possible further downgrade, the agency said the downgrade and review were prompted by the announcement of the Bell County sale delay, noting that the transaction is slated to provide the company with much-needed liquidity.

Moody's also cited the release of negative selected fourth quarter data, as well as guidance for 2007 and beyond "that further lowers expectations for the company's performance."

Remy again rolls higher

Elsewhere, Remy International Inc. bonds firmed for a second straight session, after the Anderson, Ind.-based automotive components maker's announcement Wednesday that it agreed to sell its light- and medium-truck diesel engine and component remanufacturing business to Caterpillar Inc. for $150 million. Its 8 5/8% notes due 2007 were called 2 points better at 89 bid, 90 offered.

Paul Deckelman and Paul A. Harris contributed to this article.

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