Delphi's bonds gained five points last week after it was reported that Steve Miller, ceo, said he would prefer to fix the company's problems outside of Chapter 11. Delphi's 6.55% '06 bonds were trading in the 73-4 range, up from 68-9. Hundreds of millions of bonds traded after the ceo's comments, with hedge funds the biggest buyers, according to one trader.
Delphi's bank debt was also boosted 1/4 point after the company put an end to a rumor that it had drawn down the remaining $300 million of its $1.8 billion revolving credit facility. Its revolver was trading at 98, while its term loan was trading at 101. Delphi drew down $1.5 billion of its revolver in August soon after closing the loan.
The company's bond price has been volatile since rumors hit the market that talks with General Motors, its former parent, and its largest union, the United Autoworkers Union, had broken down. A Delphi spokeswoman said it is still in talks and would not comment on the progress of the talks. Bankruptcy concerns have caused its '06 notes to decline 20 points in the past month. Miller's comments that the company would try to avoid bankruptcy failed to ease the concerns of some traders. "There is a lot of uncertainty over whether they are going to file. There is a feeling that Steve Miller is a wild card," said one trader.
It is doubtful Delphi will be able to stay out of bankruptcy without reaching an agreement with General Motors and its unions on labor cost restructuring. "They can't continue with their labor cost structure and most of their product lines losing sales. They wouldn't continue in operation for long," said Shelly Lombard, high yield analyst at Gimme Credit.
If Delphi does file for Chapter 11, the amount that unsecured creditors would recover depends largely on Delphi's pension liabilities, said Lombard. "Bonds would be pari passu with pension liabilities," she said. Delphi had $4.3 billion of underfunded pension liabilities at the end of 2004. General Motors would be on the hook to pay a portion of these if Delphi files for bankruptcy.