Delphi bonds continue skid, bank debt also lower; Tembec bonds cut down

By Paul Deckelman and Sara Rosenberg

New York, Sept. 20 - Delphi Corp.'s bonds continued to erode away on Tuesday amid growing speculation that the company will not be able to avoid bankruptcy, and, for the first time in several sessions, the Troy, Mich.-based automotive electronics maker's bank debt was also on the downside, even though the general consensus seems to be that holders of that debt will not suffer if Delphi parks itself in Chapter 11.

Elsewhere, Tembec Inc.'s bonds continued to head lower in the aftermath of last week's move by Standard & Poor's to downgrade the Canadian forest products producer's debt ratings to the CCC level due to what the rating agency described as its operational weakness, along with tough paper and lumber industry conditions.

Delphi's benchmark 6.55% notes due 2006 were seen by one market source as having fallen below the psychologically significant 70 mark for the first time, declining to 69.75 bid from 73 previously. He saw Delphi's 6½% notes due 2009 off almost four points to 64.5, while its 6½% 2013 bonds were down a full five points at 63. Its 7 1/8% notes due 2029 ended at 60 bid, down 4½ points.

A second trader saw the company's bonds down about 2½ points across the board, with the 6.55s at 69.5 bid, 70.5 offered and the 2009 bonds at 67.25 bid, 68.25 offered.

Yet another trader said that as has been the case over the past few sessions, the rumors about the company's possible bankruptcy between now and Oct. 17 "were hot and heavy," which dragged the '06 bonds as low as 68, the '09 bonds as low as 63 and the '29s as low as 58, before they recovered a little off from their lows, though they still ended down three to five points. "They just got pummeled," he declared.

A bank debt trader said that Delphi's paper traded lower on the day as the whole auto sector in general was off, the overall secondary market was somewhat heavy, the company's bonds kept toppling and the persistent bankruptcy rumors continued to swirl.

The trader saw its revolving credit loan quoted at 97.5 bid, 98 offered by one trader and at 97.75 bid, 98.25 offered by a second trader. Both traders claimed that the paper was down by about half a point on the day.

As for the term loan, that was quoted at 101.5 bid, 102 offered by a trader. On Monday, a different trader had the term loan closing out the session at 101.75 bid, 102.25 offered.

For weeks, Delphi has been looking to former corporate parent General Motors Corp. for some sort of financial bailout. When it was spun off from GM several years ago, it was saddled with high labor costs under a United Auto Workers union contract as part of the spin-off deal. Now, Delphi is asking GM and the UAW to give it a break and allow it to cut its labor costs, possibly by handing some of the more costly inherited factories back to its former parent.

The company has warned that it could be forced into Chapter 11 if it does not get concessions from the UAW and help from GM.

Delphi has also said that a filing would come before Oct. 17 - the date when federal bankruptcy laws will change, becoming less friendly to debtor companies as they will be given less time to come up with a reorganization plan.

Over the past week or so, the company's bonds have been taking a beating as people are starting to think that a Chapter 11 bankruptcy filing may be more and more likely.

The company's revolver, however, has been climbing higher because investors believe that, if necessary, the revolver debt will be rolled into a debtor-in-possession facility, resulting in a par paydown.

Meanwhile, the term loan has basically been staying wrapped around the 102 context, because that paper is pre-payable at a call premium of 102.

But, as all the market technical and specific issuer factors combined Tuesday, the bank debt finally gave in to the pressure, resulting in weaker levels for the first time in a while.

On the equity side of the fence, Delphi's New York Stock Exchange-traded shares nosedived another 35 cents (10.39%) to $3.02, on volume of 22 million shares, nearly four times the average daily turnover.

Foamex secureds keep rising

Also in the automotive sphere, Foamex LP's 10¾% secured bonds due 2009 continued to gain, the day after the Linwood, Pa.-based maker of foam rubber products for the auto industry and non-automotive customers sought Chapter 11 protection from its bondholders and other creditors.

Those secured bonds rose to 85.25 bid from 84 previously, a market source said. However, the company's two other series of notes - its 13½% notes that were to have been paid off at maturity on Aug. 15, but weren't, and its 9 7/8% notes due 2007, languished at lower levels, the former seen off a point at 7.5, and the latter down more than two points at 9.25.

Foamex, in announcing its filing on Monday, said that it had reached an agreement in principle on the major terms of the restructuring with certain members of an ad hoc committee representing holders of a majority of the secured notes. Foamex will eliminate approximately $523 million of outstanding bond debt which, in turn, would result in annual interest savings of $54 million. Holders of the secured notes will convert their debt into 100% of the equity of the reorganized company, subject to dilution.

As for the holders of the subordinated bonds and other unsecured creditors - to the extent their claims are not otherwise treated as critical supplier claims or paid through assumption of their contracts during the case - the company said that should they vote to accept the reorganization plan, then they will receive, on a pro-rata basis, warrants to purchase between 5% and 10% of the equity of the reorganized company, depending on the ultimate allowed amount of general unsecured claims. Under the agreement in principle, there will be no recovery for stockholders.

Not surprisingly, Foamex's penny stock shares lost much of what little remaining value it had, the NYSE-traded stock off four cents (33.33%) to close at eight cents a share, on volume of 3 million, about triple the norm.

Tembec slips further

Elsewhere, Tembec's bonds continued to be whittled away, with a trader quoting its 8 5/8% notes due 2009 as having fallen to 72.75 bid from 75.25 previously, while its 7¾% notes due 2012 dropped to 67.5 bid from 70, and its 8½% notes due 2011 ended at 69.75 bid from 72 earlier.

The trader saw sector peer Millar Western's 7¾% notes due 2013 off 1½ points, at 85.

At another desk, a trader quoted all the Tembec bonds "down two or three points on the day," and saw the 8 5/8s as having dropped as low as 70.5 intraday, before coming off that low to close at 72 bid, 73 offered, still down from Monday's 75 bid, 76 offered.

He saw the 81/2s go as low as 69 bid before finishing at 70 bid, 71 offered, also down two or three points.

There was no fresh news out on the company, whose bonds and Toronto-traded shares continue to decline in the wake of last week's ratings downgrade by S&P.

Northwest rises

Northwest Airlines Corp. 's bonds were seen about a point higher, a market source said with all of the bankrupt Eagan, Minn.-based Number-Four airline carrier's notes now trading in a 24-24.5 context. Bankrupt rival Delta Air Lines Inc.'s bonds remain in a 16.5-17 range.

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