Dura Automotive Systems Inc's debt continued to fall on Friday as investors grew increasingly concerned that the company poses higher risk of defaulting on its debt, following its much-wider-than-expected second-quarter loss.
"Its a bankruptcy risk," said Gregg Klein, high yield analyst at BNP Paribas in New York. "It's not dead, but it's taking on water." Dura, which makes parking brakes, pedals and gear shifts, posted a second-quarter loss from continuing operations on Thursday of $2.03 per share compared with a profit of 9 cents per share a year earlier, due to industry production cuts and higher costs.
The auto parts supplier's bonds continued to be the most actively traded in the corporate bond market on Friday, following volumes on Thursday appearing to be larger than the size of the debt issues.
Liquidity in the company's bonds, in addition to its very low ratings, have resulted in it having more actively traded debt than default swaps, analysts said.
This means that the company would be unlikely to undergo a squeeze on its debt to settle credit derivatives contracts, as happened when bankrupt suppliers Delphi Corp and Dana Corp filed, they said. "With current operating trends, they don't have a lot of room; they have to start achieving cost savings sooner rather than later," Klein said.
Dura said on Thursday it planned to cut 510 workers, roughly 3 percent of its staff world-wide, by the end of 2006. That is in addition to plant closings and production shifts announced in February for a restructuring it wants to finish by 2008.
Dura's $400 million senior notes with a 8.625 percent coupon due 2012 was the most active issue with more than $542 million in trading volumes on Thursday, according to MarketAxess. The bond dipped three quarters of a cent on Friday to 75.75 cents on the dollar, following its 7.5-cent drop on Thursday.