Delphi bank debt better, bonds steady; Refco bonds zoom; Delta steady despite Song move

By Paul Deckelman and Sara Rosenberg

New York, Oct. 28 - Delphi Corp.'s pre-petition bank debt continued to strengthen during Friday's session, probably on follow-through from Thursday's coupon increase with the switch to a Prime-based rate as opposed to a Libor-based rate.

However, the bankrupt Troy, Mich.-based automotive electronics manufacturer's bonds were seen little changed on the session - and some other auto names were seen lower, in line with general weakness in the sector following the bankruptcy rumors that swirled around General Motors Corp. on Thursday, which the giant carmaker heatedly denied.

Elsewhere, Refco Inc.'s bonds were quoted up anywhere from three to five points on reports that more buyers for some or all of the bankrupt New York financial company might emerge before the scheduled Nov. 4 auction deadline.

And Delta Air Lines Inc.'s bonds were seen little changed on the news that the bankrupt Atlanta-based Number-Three U.S. airline carrier's Song discount airline unit will end operations and be folded into the mainline carrier.

A bank debt trader said that Delphi's revolving credit loan was quoted at 101.25 bid, 101.75 offered, up from 101 bid on Thursday.

Meanwhile, the company's term loan was quoted at 104.75 bid, 105.25 offered, up from 104 bid, 105 offered previously.

With the recent switch in the coupon rate on the company's bank debt, the revolver is now priced at Prime plus 400 basis points and the term loan is now priced at Prime plus 500 bps - giving investors an approximately 150 bps bump up in spreads.

While Delphi's bank debt was going somewhere, traders said its bond debt was going nowhere, continuing to trade around the same 66 bid, 67 level it has occupied for the last several sessions.

Auto names sink

Automotive sector bonds in general are seen as weak, as sector bellwether General Motors continues to struggle. Ever since Delphi - a former GM subsidiary spun off in 1999 - filed for Chapter 11 protection earlier this month, there was been speculation the move might prove disastrous for GM, which is theoretically on the hook for as much as $12 billion of pension and other labor costs. On Thursday, speculation that that might force GM into its own bankruptcy filing - on top of news of a Securities and Exchange Commission probe of GM's accounting - dropped the bonds sharply, even though the company denied that it plans any kind of bankruptcy filing.

In Friday's dealings, a trader saw the GM bonds lower, but said that trading was "more orderly" than the near panic selling that caused its bonds to drop about three to four points on the session.

GM's benchmark 8 3/8% notes due 2033 were seen at 73.5 bid, 74.5 offered, which a trader said was 1½ points down from Thursday's levels. General Motors Acceptance Corp.'s 8% notes due 2031 were seen ¾ point worse at 102.5 bid, 103 offered.

At another desk, a trader saw the GMAC notes as having fallen to 102.5 bid from levels as high as 104 on Thursday, and from 110 last Monday.

GM's woes pulled other automotive names lower, with bankrupt Troy, Mich.-based interior components maker Collins & Aikman's 10¾% senior notes due 2011 down three points on the day at 48 bids, 50 offered.

Although Tower Automotive was unseen, a trader said that Dura Automotive's bonds "continue to be weaker, on more follow-through on bad [earnings] numbers. He saw Rochester Hills, Mich.-based Dura's 9% notes due 2009 down two points at 60.5 bid, 61.5 offered.

Mirant loans lower

Elsewhere, Mirant Corp.'s bank debt saw another volatile day, spending most of the day at levels that were about a point and a half lower before rebounding to end the day unchanged, according to a trader.

The bankrupt Atlanta-based power generating company's debt was quoted as low as 103.5 bid, 104.25 offered during market hours, the trader said, but by the close had regained all of the losses to end the day at 105 bid, 106 offered.

On Thursday, the bank debt had experienced a similar type of activity, dropping to 104 bid, 105 offered early in the day before moving back to 105 bid, 106 offered, where it ended the session.

"There was market heaviness again. But then it came back up," the trader explained.

Calpine steady at lower levels

Also in the power generating sector, Calpine Corp.'s notes - which had gotten whacked around earlier in the week after two big convertible note holders said the San Jose, Calif.-based company had defaulted on one series of converts - were seen unchanged, with the company's 8½% notes due 2011 at 47 bid, 49 offered, and its 8½% notes due 2008 at 53.75 bid, 54.75 offered.

Also unchanged were the bonds of Delta Air Lines, even though for Delta, the Song is ended, but the melody lingers on. Delta - reorganizing under Chapter 11 - announced that it will pull the plug on Song, which will cease operations as a separate unit in May. Its planes will be integrated into Delta's main fleet. Delta, which wants to get its costs down so as to be able to better compete with low-cost carriers like JetBlue, Song's main rival, is expected to integrate some of its features into the main airline operation.

Delta's bonds were seen remaining in their recent holding pattern around 17 bid, 17.5 offered, despite the Song news.

Refco higher

Back on the ground, Refco's volatile 9% notes due 2012 were seen ending the week "up another three to five points," a trader said, pegging the bonds at 71.5 bid, 73.5 offered, up from Thursday levels in the upper 60s, and from levels in the 50s at the beginning of the week.

Another trader saw even more pronounced movement, with the bonds moving up to 71 bid, 72 offered from prior levels around 65 bid, 66 offered, although he didn't see any news about the company.

"It was just move buyers coming in, covering shorts," he said.

"Wow," yet another trader exclaimed when he examined what he said was better than five-point move in the bonds, to 71 bid, 72 offered.

"What was it a week or so before, like 30?" he asked, rhetorically.

Those Refco bonds had been driven down to that lower level over several sessions earlier in the month, after disclosure of a bad $430 million loan to a company controlled by then-chairman and chief executive officer Phillip R Bennett; the heretofore undisclosed loan was hidden deep in the company's balance sheet, allegedly disguised so as not to interfere with Refco's highly successful initial public offering this past summer. Although Bennett repaid the loan, he was ousted from his executive positions after it came to light and indicted by a federal grand jury for alleged securities fraud.

That caused the bonds to tumble from lofty levels around 108 before the scandal broke to new, lower levels - first into the 90s, then the 70s, the 60s, the 40s, and finally down to around 30. As the bad news multiplied, Refco suspended operations of its Refco Securities unit, began unwinding its futures trades, and began shopping its valuable futures unit around. It entered Chapter 11 on Oct. 17 - ironically, just missing by hours the deadline by which it had to file in order to enjoy the protection of the more lenient debtor protection rules that were part of the Bankruptcy Code up till that point.

In announcing its filing, Refco said that it had agreed to sell its futures business to a buyout group led by former Goldman Sachs & Co. banker Christopher Flowers for $768 million, plus a 2.8% breakup fee, which caused the bonds to bounce off their lows and begin heading steadily back up.

Then, a second buyer - Interactive Brokers, an option trading and brokerage firm - came in with a higher offer, which it later improved again to $858 million, currently the high bid.

That eventually caused the Flowers-led group to drop out. But by that time, other would be buyers had expressed interest, including Dubai Investment Group LLC, acting in concert with California supermarket tycoon Ron Burkle's Yucaipa Cos. LLC, through DIGL Inc., bidding $828 million.

Also said to be in the hunt were futures brokerage firm Man Financial; Marathon Asset Management LLC; Apollo Capital Management LLC.; and more recently, futures commission merchant TradeLink LLC and its co-founder, Walt Weismann.

News reports Friday said that still other potential suitors might yet emerge, to make bids either singly or as part of a group. Bids have to be submitted to the U.S. Bankruptcy Court by Friday, Nov. 4, with the formal auction to be held on Nov. 9, and a hearing confirming the winner to be held the following day.

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