Dura continues drop amid Chapter 11 talk; primary set for $5 billion Friday; funds see $20 million outflow

By Paul Deckelman and Paul A. Harris

New York, Sept. 14- Dura Automotive Systems Inc.'s bonds and shares were again riding in the breakdown lane Thursday as bankruptcy rumors swirled around the Rochester Hills, Mich.-based auto systems producer - and after a court refused to order the company's suppliers to keep doing business with Dura, which has run into payment problems.

Also in the automotive area, bonds of Ford Motor Co. and its Ford Motor Credit Co. were lower as the struggling Dearborn, Mich.-based Number-Two domestic carmaker's board concluded its two-day meeting with no official announcement from the company on what had been decided at the widely watched meeting. Ford plans a Friday announcement. However, late in the day, news reports that the company plans to offer buyouts to all of its unionized U.S. employees began circulating.

A high yield syndicate official marked the broad market flat on Thursday, but added that junk is up ½ to 5/8 point on the week.

Meanwhile, although no new issues were priced during the Thursday session, sources had their eyes trained on Friday when the primary market expects to see more than $5.37 billion equivalent of issuance in 11 tranches from five issuers.

Funds see small outflow

And as activity was winding down for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $19.8 million more left the funds than came into them. In the previous week, ended Wednesday Sept. 6, the funds saw a $107.1 million inflow.

That rather minuscule bleed extends the year-to-date red ink for the weekly reporting funds to negative $3.074 billion for 2006 to Wednesday.

Meanwhile funds that report on a monthly basis to AMG took in $165.2 million in the most recent period, extending their year-to-date inflows to $2.797 billion.

AMG tallies these numbers to come up with year-to-date aggregate flows of negative $276.3 million.

Even with the latest week's outflow, inflows have still predominated lately, seen in five weeks out of the last eight, during which time net inflows have totaled $522.5 million, according to a Prospect News analysis of the figures. Inflows have also now been seen in seven weeks out of the past 11 - a rarity in a fund-flow landscape so far this year that has been almost completely dominated by outflows. Over those 11 weeks, net inflows have totaled $619.3 million, according to the Prospect News analysis.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

Dura dives

Back among the secondary names, Dura Automotive was "down quite a bit," said a trader, who quoted the company's Dura Operating Corp. 8 5/8% senior notes due 2012 as having fallen from a 70ish context on Wednesday to as low as 61 in Thursday's trading before coming off the lows and settling in at 63 bid, 64.

"There was a fair amount of selling this [Thursday] morning," another trader said, "before the bonds came off their lows." He quoted the 8 5/8s ending at 64 bid, 64.75 offered, which he called down 2½ points on the session, after having fallen as low as 61 bid, 62 offered in the morning.

"There was brief interest in selling," he added, "then that popped back up. That was the story."

The trader also saw the Dura Operating 9% subordinated notes due 2009 fall as low as 8 bid, 9 offered in morning trading before firming slightly off those lows to finish at 9.5 bid, 10 offered - still down 2½ points on the day. However, he said that the 8 5/8s were by far the busier of the two issues.

Dura's Nasdaq Global Market-traded shares meantime swooned 8 cents (16.85%) to end at 37 cents. Volume of 1.2 million was about three times the usual turnover.

Dura's bonds were already sliding on Wednesday after Lehman Brothers said in a research report that a bankruptcy filing was likely in the next few months.

However, that is not really an earth-shattering bombshell, said Bob Grimm, managing director at J. Giordano Securities Group in Stamford, Conn. "Everyone expects a filing," he declared. "The threat of a filing is nothing new. It's just a question of when?"

Grimm said that Thursday's price action was being driven by market rumors that Dura "was around looking for DIP [debtor-in-possession] financing, which means they're going to file - and the DIP people were demanding extremely high interest rates" before committing to loan the company any money.

"They were really giving them [Dura] a hard time," he reiterated. "That's what's got everybody spooked."

He also said that a court ruling earlier this week in Michigan might be taking its toll as well. In that decision, handed down Tuesday by a federal judge in Detroit, Dura failed in its effort to get the court to order supplier Johnson Electric North America Inc. to keep providing Dura with seat adjuster motors. Johnson had suspended deliveries because Dura owes the company $1.3 million.

"The screws are tightening on Dura from all angles," Grimm warned. While none of the other vendor companies that sell components or raw materials to Dura has been reported to have tightened their credit terms, "if one of them is doing it, who's to say they all aren't?"

Grimm further cited a recent research report which called Dura's 9s essentially worthless and which estimated the value of Dura's senior debt as between 60 and 80 cents on the dollar in a liquidation scenario. "They said that even if Dura goes through the bankruptcy process, and gets rid of all of its debt, about the best they're going to be is cash-flow break-even.

"If you get rid of all your debt and you're only cash-flow break-even, you're really not a viable company."

Should Dura file fro protection from its junk bond holders and other creditors, it will join such sector peers as Collins & Aikman Corp., Delphi Corp., Dana Corp. and Tower Automotive Inc.

"All of the suppliers are really in big trouble," the Giordano managing director opined. "The auto guys," like Ford, General Motors Corp. and DaimlerChrysler AG's domestic Chrysler Group, "are looking to cut expenses and have fewer suppliers."

The bottom line, he said is that "a lot of these guys will eventually disappear."

Ford easier ahead of news

Among the carmakers, Ford's bellwether 7.45% notes due 2031 down half a point at 78.75 bid, 79.75 offered, while the Ford Credit 7% notes due 2013 were down ¼ point at 93 bid, 93.5 offered.

"There was no big reaction," to the stories coming out of Detroit predicting that Ford would begin a massive buyout campaign aimed at whittling down its more than 75,000-person unionized domestic work force.

Ford did not disclose what took place behind the closed doors of its board room, although it slated an announcement for Friday.

However, the United Auto Workers union said Thursday that the company would expand its buyout program to the entire unionized U.S. workforce as part of a larger restructuring effort aimed at returning the company to profitability.

GM's benchmark 8 3/8% notes due 2033 were meanwhile down ¼ point at 86.75 bid, 87.25 offered.

Technical Olympic bounces

Elsewhere, Technical Olympic USA Inc.'s bonds were seen better, bouncing back a little from the oversold levels to which the Hollywood, Fla.-based homebuilder's notes - and those of most of its sector peers as well - had recently fallen on investor angst over the prospects for the homebuilding industry. That concern was stoked by several builders, including Lennar Corp., KB Home and Hovnanian Enterprises Inc., releasing either weak numbers or bearish guidance.

Technical Olympic's 7½% notes due 2015 were seen up nearly 2 points on the session at 81.25 bid, as were its 10 3/8% notes due 2012, at 92.5. Its 9% notes due 2010 were a point better at 97.5 while its 8¼% notes due 2011were also up a point, at 94.375.

Wynn Vegas a winner on upgrade

Wynn Las Vegas LLC bonds were improved following ratings upgrades Wednesday from both Standard & Poor's and Moody's Investors Service for the Las Vegas-based gaming operator.

Its 6 5/8% notes due 2014 were seen by a market source up about ¼ point following the upgrades, although the source also saw the 12% notes due 2010 issued by corporate parent Wynn Resorts Ltd. as much as a point lower at 112.25 bid.

The ratings upgrades followed Wynn Resorts' sale of its subconcession rights in Macau to an affiliate of British gamer Publishing & Broadcasting Ltd. for $900 million.

Both ratings services noted the positive impact the transaction will have on Wynn's liquidity as it pursues two ambitious development projects - its recently opened $1.2 billion Wynn Macau resort, and its Encore resort at Wynn Las Vegas. The subconcession rights - which are separate from Wynn's new casino there - will allow PBL to operate gaming operations in the Chinese territory. It plans to develop a joint casino venture in Macau with Hong Kong's Melco International Developments.

S&P upped the Wynn corporate credit ratings on both the parent and its unit to BB- from B+, while removing the ratings from CreditWatch. The outlook is stable.

Moody's raised lifted Wynn's corporate family rating the rating on its $1.3 billion of first mortgage notes to B2 from B3, with a stable outlook.

"The upgrade reflects the expectation of further improvement at the Wynn Las Vegas Casino, as well as the indirect benefit to Wynn from the sale of the subconcession agreement," Moody's declared.

No buyout boost for Applica

The news that a major shareholder of Applica Inc. has offered to take private the Miramar, Fla.-based maker of small appliances and other consumer products had little impact on its bonds. The company's 10% notes due 2008 were seen up perhaps 1/8 point at 98.625 bid, even as its New York Stock Exchange-traded shares jumped $1.19 (26.10%) to finish at $5.75, on volume of 1.03 million, nearly 10 times the norm.

Harbinger Capital Partners and related funds, which currently own 40% of Applica, offered to buy the rest of the company for $6 per share - provided that Applica terminates its previously announced planned merger with Nacco Industries Inc.'s Hamilton Beach/Proctor-Silex business.

The deal with Nacco, which was announced in late July, would see the Cleveland-based company spin off the Hamilton Beach and Proctor-Silex businesses into a new entity, Hamilton Beach, Inc., which would then merge with Applica.

Stage now set

Issuers and their investment bankers unveiled finishing touches on several of Friday's 11 tranches, which are expected to total $5.37 billion equivalent of net issuance.

One of the mega-deals, Seagate Technology HDD Holdings (Cayman)'s $1.25 billion three-part offering of senior unsecured notes (Ba1/BB+), was talked on Thursday.

The Scotts Valley, Calif. computer hard drive manufacturer talked its three-year floating-rate tranche at Libor plus 87 basis points area.

Meanwhile Seagate talked its five-year fixed-rate notes at Treasuries plus 175 basis points area, and its 10-year fixed-rate notes at Treasuries plus 212.5 basis points area.

Morgan Stanley, JP Morgan and Goldman Sachs & Co. are joint bookrunners.

Proceeds from those three bullet tranches will be used to call all the company's 8% notes due 2009 and for general corporate purposes.

Impress talks dollar notes

Elsewhere Impress Holdings BV (Impress Metals) talked a $150 million tranche of seven-year floating-rate notes (B1) at Libor plus 312.5 basis points area.

That tranche is part of an overall €1 billion equivalent three-part transaction which is expected to price on Friday.

The overall size of the seven-year senior secured floating-rate notes issuance is expected to be €730 million equivalent.

Also on Thursday, Impress Metals set a €615 million size on its euro-denominated senior secured floating-rate notes tranche (also B1). On Wednesday those notes were talked at a 312.5 basis points spread to Euribor.

The floating-rate notes will be callable in one year at 102, with the call premium declining to 101 in year two. In a restructuring of the call provisions, call protection was increased from the earlier-announced six months.

The transaction will also include a €270 million tranche of eight-year fixed-rate senior subordinated notes (B3), which were talked on Wednesday at 9% to 9¼%.

JP Morgan has the books.

Agile tightens talk

Agile Property Holdings Ltd., with a $350 million Rule 144A/Regulation S offering of seven-year senior notes (Ba3/BB) that were marketed this week in the United States, lowered talk on those notes to 9% to 9 1/8% from the initial talk of 9¼%.

Morgan Stanley and HSBC are joint bookrunners for the land acquisition and general corporate purposes deal from the Hong Kong-based property developer.

A fully loaded Friday

The above-mentioned offerings join another pair of whoppers, price talk on which surfaced earlier in the week.

Lyondell Chemical Co. expects to price $1.775 billion of senior unsecured notes in two tranches (B1/B+/BB-), via JP Morgan, Banc of America Securities LLC, Citigroup and Morgan Stanley.

A tranche of eight-year notes is talked at a yield in the 8% area, while Lyondell's 10-year notes are talked to come 25 basis points behind the eight-year notes.

And Berry Plastics Holdings Corp. looks to price $750 million eight-year second-priority senior secured notes (B2/CCC+) in two tranches via joint bookrunners Deutsche Bank Securities, Credit Suisse, Citigroup and JP Morgan.

Berry's fixed-rate notes are talked at the 9% area, while its floating-rate notes are expected to come at Libor plus 400 basis points area.

Still waiting for the big sale

Despite the negative news from AMG, sources have been saying that high yield accounts are flush with cash - more so, one source said Thursday, because in anticipation of a big post-Labor Day calendar a lot of those accounts had socked away cash.

The fact that the post-Labor Day calendar has built notably slower than many sources had forecast it would has created some itchy trigger fingers on the buy-side, or so the reasoning goes.

That's one big factor in what sources say has been a stellar week in the high yield secondary market.

In any case, the pending Friday session - which promises $5.37 billion equivalent of new issuance - should provide means to measure the pent up demand for junk bonds.

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