Dura bank debt down, bonds collapse on poor Q2; Tembec holds gains

By Paul Deckelman and Sara Rosenberg

New York, July 27 - Dura Automotive Systems Inc.'s second-lien bank debt fell off by a little over a point during Thursday's trading session, loan traders said, on the heels of the release of disappointing second quarter numbers.

Those bad numbers caused the Rochester Hills, Mich.-based automotive control systems supplier and recreational vehicle manufacturer's subordinated bonds to swoon at least 20 points on the session, while even its senior notes were seen about 8 points lower.

However, junk traders saw no widespread sympathy downturn in other automotive-related names in response to Dura's woes.

Elsewhere, Tembec Industries Inc. bonds were seen hanging in there at the slightly higher level to which the Montreal-based forest product maker's bonds had risen around mid-week, a move up from what was called oversold levels before that.

Dura's second-lien paper closed out the day quoted at 99.5 bid, par offered, down from previous levels of 100.75 bid, 101.5 offered, a bank loan trader said.

Its bonds, meanwhile, completely swooned. Dura, a junk market trader bluntly put it, "got its ass kicked after an abysmal quarter."

He saw the company's Dura Operating Corp. 9% notes due 2009 in freefall, plummeting as much as 26 points on the day to finish at 28.5 bid, 30.5 offered, and saw Dura's 8 5/8% notes due 2012 down 8 points on the session at 75.5 bid, 76.5 offered.

Another trader pegged the subordinated 2009 bonds' slide at 22 points, from 48 bid in the morning down to 26 bid, 28 offered.

Its Nasdaq-traded shares meantime plunged 87 cents (55.77%) to close at 69 cents on Thursday. Volume of 6.03 million shares was nearly 65 times the average daily turnover.

For the quarter, Dura reported revenues of $573.3 million compared to $623.8 million in the prior year's quarter. It had a net loss of $131.3 million ($6.96 per diluted share) compared to net income of $3 million (16 cents per diluted share) in 2005. Its adjusted loss from continuing operations of $38.3 million ($2.03 per diluted share) likewise represented a deterioration from its adjusted income of $1.6 million (9 cents per diluted share) in the second quarter of 2005. Adjusted EBITDA of $21.4 million was less than half the year-ago quarter's $50.2 million.

The company said that the decrease in second quarter revenue was driven primarily by lower North American and European automotive production, unfavorable vehicle platform mix and the loss of the GMT 800 seat adjuster business.

For the six month period ended July 2, Dura said that revenue totaled $1.2 billion, about unchanged from a year earlier. It showed a net loss of $138.3 million ($7.35 per diluted share) sharply wider than the year-ago net loss of $1.9 million (10 cents per diluted share). The company further suffered an adjusted loss from continuing operations was $44.7 million ($2.37 per diluted share), far wider than the year-earlier adjusted loss from continuing operations of $2.1 million (11 cents per diluted share).

Despite the unfavorable numbers, Dura executives sought to put the results in the best possible light. While calling the numbers "extremely disappointing," Dura's chairman and chief executive officer Lawrence Denton characterized them on a conference call with analysts as "a temporary shortfall in earnings" and said that he has "great confidence" that Dura will successfully complete its turnaround plan, announced earlier this year. Denton and Dura's chief financial officer, Keith R. Marchiando, also pronounced themselves as "comfortable" with the company's liquidity position, despite the poor earnings figures (see related story elsewhere in this issue).

No pressure on other autos

A junk trader, when asked whether Dura's troubles had much effect on the bonds of other automotive supplier companies, replied "not really, as far as I could tell." He said that bankrupt Toledo, Ohio-based parts manufacturer Dana Corp.'s bonds "were maybe down on the long end a little," its 5.85% notes due 2015 ending at 74.5 bid, 75.5 offered, but he said that activity levels were light.

A trader at another desk agreed, characterizing those Dana bonds down a point - though he saw them at 73.5 bid, 74.5 offered - but said that this was "on relatively low volume."

He also saw Delphi Corp.'s bonds off perhaps a point and said that Tenneco Automotive Inc.'s notes were unchanged, at 99 bid, 99.5 offered.

"Its numbers were as expected," he said of the latter company, which also released results on Thursday. "Kind of ham on rye, nothing special."

The first trader meantime saw General Motors Corp.'s bonds "very quiet, up a little, but then right back down "to end unchanged.

Another trader saw the GM notes pretty much unchanged at levels in the lower 80s.

Those bonds had risen solidly over the previous two sessions on anticipation that GM would post good second-quarter returns, which it did.

GM on Tuesday announced that for the second quarter it had a net loss of $3.2 billion ($5.62 per share), although that included a total of $4.3 billion ($7.66 per share) in special items that reflected a previously announced $3.7 billion after-tax charge related to the successful accelerated attrition program, in which 34,400 hourly employees participated. By comparison, for the second quarter of 2005, the company reported a net loss of $987 million ($1.75 per share).

However, GM bulls pointed to the company's adjusted net income for the quarter, excluding special items, which was $1.2 billion ($2.03 per share) on record revenue of $54.4 billion. That was a solid improvement of $1.4 billion from the year-ago adjusted loss of $231 million (41 cents per share) on revenue of $48.5 billion.

Tembec firm

Elsewhere, a trader said that "I saw Tembec hold their gains from two days prior, after their numbers came out."

Its 7¾% notes due 2012 were a shade over 50 bid, its 8½% notes due 2011 at 52.5 bid, and its 8 5/8% notes due 2009 at 54.5.

He saw the bonds pushed up on a mixture of short-covering after having been oversold previously. He opined that the bonds had moved lower earlier in the month "because people feel that this company has to restructure, and that the [they thought] the earnings would be worse than they came out."

For instance, he said, there was widespread expectation that EBITDA gains would come in single digit to low teens, percentage wise.

"But when EBITDA came in at $21 million, I think people were surprised, and that's why you got the pop."

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