Tower bonds lower, though autos end mixed; Tembec continues to ease

By Paul Deckelman

New York, Jan. 18 - Automotive sector bonds continued to struggle on Wednesday, high-yield bond traders said, with Tower Automotive Inc.'s bonds being the dog of the day. However, General Motors Corp. and other auto-related names managed to post gains on the session.

Elsewhere, Canadian forest products company Tembec Industries Inc.'s bonds continued to get chopped down, although there was no fresh negative news out about the company.

Distressed airline names - which had pushed lower on Tuesday after Continental Airlines Corp. issued bearish guidance - were seen mostly steady on Wednesday, while American Airlines Corp. was up on more favorable quarterly results.

"The world of GM moved around," a trader in distressed issues said, quoting the beleaguered Detroit giant's benchmark 8 3/8% notes due 2033 "a little better" at 69.5 bid, while seeing its General Motors Acceptance Corp.'s 8% notes due 2031 at 99.5 bid, par offered, up a point on the day.

He also said that bankrupt Troy, Mich.-based auto electronics manufacturer Delphi Corp.'s bonds "didn't look much weaker" at 54 bid, 55 offered, although a trader at another desk pegged the company's bonds off half a point, its 6.55% notes due 2006 at 54.25 bid, 55.25 offered and its 7 1/8% notes due 2029 at 55 bid, 56 offered, both down half a point.

Tower Automotive's bonds were meanwhile taking over as the day's big loser from Dana Corp. and Collins & Aikman Corp., which held that unenviable distinction on Tuesday.

Tower was "the name of the day," a trader said, as its 12% notes due 2013 traded as high as 72 before going out at 70.5 bid, 71 offered.

Another trader saw the 12s at 70.625 bid, 71.625 offered, well down from Tuesday's levels around 73 bid, 74 offered. He said that there was no news out Wednesday on the company, although he theorized that the bonds may have been weakened by its recent disclosure of a big net loss in the latest reporting period.

By taking it on the chin, Tower assumed the role that had been played on Tuesday by Dana, whose various series of bonds fell several points after the Toledo, Ohio.-based automotive systems maker reported a $1.27 billion net loss in the third quarter, and Collins & Aikman, whose 10¾% notes due 2011 nosedived six points into the lower 30s, following a Wall Street Journal report about the bankrupt Troy, Mich.-based auto interiors manufacturer's efforts to interest potential buyers in the company or one or more of its divisions.

On Wednesday, those Collins & Aikman bonds were seen holding steady at those lower levels, after "they already took their beating," a trader said.

Collins & Aikman, seeking to clarify the information contained in Tuesday's WSJ story, said on Wednesday that it will stick to what it called a "dual strategy" to emerge from bankruptcy, meaning it could either exit as a whole or else break up and sell its units to prospective buyers.

It said that while Collins & Aikman tries to remain as a stand-alone company, it is seeking through advisers to market some or all its assets "to determine their market value for a potential sale, merger or equity infusion from investors."

On Tuesday, those bonds ran into a buzzsaw of investor skepticism and dismay that the process of trying to sell some of the units was only just now beginning, even though the company has been in reorganization since last May.

The Collins bonds were also hit Tuesday by generalized weakness in the automotive sector in the wake of terrible third-quarter numbers posted by Dana, whose bonds were down on Tuesday anywhere from two to four points.

On Wednesday, those Dana bonds continued falling, with a trader seeing its 5.85% notes due 2015 down another two points to 67 bid, 68 offered. Another trader saw those bonds at that same level, though estimating them to be down 1¾ points lower.

Dura down, Visteon up

Among other automotive suppliers, Dura Operating Corp.'s 9% notes due 2009 were seen down a point at 53.5, although Visteon Corp.'s 8¼% notes due 2010 were a point better at 83.5 bid, 84.5 offered.

Navistar International Corp.'s 6¼% notes due 2012 were seen unchanged at 89.25 bid, 90.25 offered, while its 7½% notes due 2011 were half a point easier at 95.25 bid, 96.25 offered after the Warrenville, Ill.-based truck, bus and engine maker failed to file its 10-K report on Tuesday, triggering a technical default on its $1.2 billion bank credit agreement. However, the company obtained a default waiver from its lenders, good through May 31, which will let it draw on the facility in the meantime.

Navistar said it was in talks with its auditors over various accounting issues, and could not say when it would file the annual report. Standard & Poor's warned that it could cut the company's BB- rating further into junk territory.

Airlines steady after AMR earnings

Apart from the automotive names, the airlines - which had fallen Tuesday after Continental Airlines warned of tough times ahead for the industry due to high fuel prices and intense competition - seemed to steady after AMR Corp., the Fort Worth, Tex.-based corporate parent of top carrier American Airlines, reported a narrower operating loss for the fourth quarter and beat Wall Street expectations, even though it did report a sizable net loss for the period.

Company executives also touted AMR's strong balance sheet, which showed more than $4 billion of cash available.

AMR's 9% notes due 2012 were seen by a trader up ¼ point on the day at 88 bid, 90 offered, while its 10% notes due 2021 were up a half point at 75.5 bid, 77.5 offered. However, the trader said that the company's 9% notes due 2016 were a full two points better at 86 bid, 88 offered.

Among the bankrupt airline names, which had been seen in retreat on Tuesday, "things were pretty quiet," a trader said. He saw Northwest Airlines Corp.'s bonds "not much different" at 36.5 bid, 37.5 offered, while United Airlines parent UAL Corp.'s bonds were at 21 bid, 22 offered, "about where they had been." He likewise saw "not much change" in the bonds of Delta Air Lines Inc., the company's notes at 22 bid.

Tembec slips

The trader also saw Tembec Industries bonds continuing to languish in the lower 40s, down a little on the session, he said, with its 8 5/8% notes at 44.5 bid, 45.5 offered, its 8½% notes at 42 bid, 43.5 offered, and its 7¾% notes at 41.5 bid, 42.5 offered.

And the trader saw "lots of quotes and lots of paper traded" in Calpine Corp., although he saw the bankrupt San Jose, Calif.-based power generating company's 8½% notes due 2011 at 25 bid, and its 8½% notes due 2008 at 35.5 bid, 36.5 offered, "about where they were."

From the derivatives market came word that banks and key market professionals had agreed upon a settlement price of 19.125% of face value, allowing cash settlement of outstanding credit default swaps on Calpine's debt to go ahead.

Technical factors related to CDS swaps were seen propping up some Calpine bonds in recent days' trading.

Under a CDS contract, which functions something like an insurance policy against a default or other credit event, the buyer of a protection contract delivers bonds of the bankrupt company to the contract seller and is compensated at par. With cash settlement, the contract seller compensates the buyer at par minus the cash settlement percentage.

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