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American Axle & Manufacturing Holdings Inc.'s (AXL) debt rose sharply Tuesday, suggesting investors are confident the auto parts supplier will meet a chunky interest payment deadline on its bonds.

The company has a $6.6 million payment due on its 5.25% bonds Tuesday, while it continues to negotiate with its lenders over its revolving credit facility. Analysts have previously expressed doubt about the company's ability to make this payment, but investors appear to have more faith.

The 5.25% bonds were recently quoted at about 60 cents on the dollar, according to James Lee, senior fixed-income analyst at Calvert Asset Management Co. That's compared with around 56 cents earlier in the session and 34 cents last week, according to online trading platform MarketAxess.

The cost of protecting American Axle's senior bonds against a default also fell, although it still reflects a severe level of distress. It was last quoted at $3.9 million upfront plus a $500,000 annual fee to insure $10 million of the bonds for five years, according to CMA DataVision. That's against $4.45 million upfront earlier Tuesday.

American Axle shares were down 6 cents at $3.34 in recent trade, off an earlier high of $3.83 Tuesday.

The company has yet to make an announcement on the interest payment. A spokesman for American Axle couldn't be reached for comment.

American Axle Chief Executive Dick Dauch said Aug. 5 that his primary objective is to complete the company's restructuring outside of bankruptcy, although he could give no assurance that would happen.

Other suppliers, including Lear Corp. (LEAR), Metaldyne Corp. and Visteon Corp. (VSTN), filed for bankruptcy after failing to secure more money to fund their operations.

American Axle's lenders, including JPMorgan Chase & Co. and Bank Of America, granted the company a waiver extension on its revolving credit facility at the end of July, giving it until Aug. 20 to continue negotiations with its banks. Justin Perras, a spokesman for JPMorgan, declined to comment.

American Axle is the largest axle supplier to General Motors Co. (GM) and relies on the auto maker for most of its revenue.

The Detroit-based company said its second-quarter loss narrowed to $288.6 million, or $5.20 a share, from $644.3 million, or $11.89 a share. The latest results included $3.46 in restructuring and other charges. Net sales plunged 50% to $245.6 million.

American Axle hasn't posted a quarterly profit since the three months ended Sept. 30, 2007.

The company has about $1.1 billion of debt on its balance sheet and about $770 million of retiree-related liabilities as at the end of December 2008, according to Kip Penniman, an analyst at KDP Investment Advisors.

-By Jeff Bennett and Kate Haywood, Dow Jones Newswires; 248-204-5542; jeff.bennett@dowjones.com