Appaloosa offer drives Delphi sharply higher; CDX closes up 3/16; LBI Media prices $225 million notes

By Paul A. Harris

St. Louis, July 18 - High-yield managed to finish higher Wednesday even as pretty much the entire market watched the continuing - and worsening - saga in subprime mortgages.

After easing at the start of the session the high yield tracking CDX index closed 3/16 point higher in price on Wednesday, with sources spotting the CDX at 99 5/8 bid, 99 ¾ offered at the close.

Although there was plenty of activity to fatten the financial pages - Federal Reserve chairman Bernanke addressed the House Financial Services Committee not long after the Bureau of Labor Statistics of the U.S. Department of Labor reported that the Consumer Price Index increased 0.2% in June - the word on the tongues of nearly all of the junk market watchers who spoke to Prospect News on Wednesday was "subprime."

In the primary market, against the recently steady cascade of pulled deals, LBI Media raised $225 million by completing its sale of 8½% 10-year notes on Wednesday.

Among existing issues, the bonds of Delphi Corp. traded sharply higher on news that the bankrupt auto parts-maker has accepted a $2.55 billion offer led by Appaloosa Management LP.

CDX: where the action is

A trader who spoke to Prospect News around mid-morning said that there was very little activity in cash bonds, but added that trading was seen in the CDX index.

The source was spotting the CDX at 95½ bid, and added that it had been at 96 1/8 bid on Tuesday morning, but most of the ensuing retreat had taken place during the Tuesday session.

At mid-morning the index was unchanged, the source said.

Throughout the session others gave the same color: index trading was active while trading in cash product was largely inactive. So Prospect News began pressing its sources for an explanation.

After the close another trader asserted that presently the index is a more liquid market where "you can trade a decent amount of size and get better quotes.

"The cash market is finite," the trader added.

The source also said that the index market is continually being created because there is demand for assets among the accounts which are continually undergoing redemptions, calls, coupon payments and tenders.

"There is cash coming into the market," said the source.

"It may not be new cash, but it's still cash, and people are not being paid to sit on cash."

However a hedge fund manager said that there are simply not a lot of bonds trading at present because of "shell shock" surrounding the subprime mortgage news.

"There are dealers with a lot of stuff on their shelves," the manager said, adding that liquidity is at a low point.

"Activity is at a standstill. People are trying to figure this thing out.

"You continue to see fallout, and people are wondering if another shoe might drop."

Bear details the damage

Sources roundabout the junk market noted that Bear Stearns Asset Management, in a letter to investors, disclosed that preliminary estimates show there is effectively no value left for the investors in the High-Grade Structured Credit Strategies Enhanced Leverage Fund and very little value left in the High-Grade Structured Credit Strategies Fund as of June 30.

Those are the two hedge funds that began to come under pressure weeks ago when trades in subprime mortgage securities began to unravel at the same time that housing prices were drifting significantly lower.

A trader who focuses on both the high yield bond market and the leveraged loan market explained that the problem is that investors "just don't know how much pain they have to take.

"They don't know if they are going to have to start liquidating cash positions to cover margin calls and redemptions.

"And what does the replacing of that entire sector do to the CLO market, which has really been the driver of all the M&A activity over the past year-and-a-half? the trader asked rhetorically.

"The sub-prime news is driving CLO spreads wider and making everyone a little wary."

Another trader, speaking at the close, also mentioned hearing rumors that "another shoe might drop," with respect to the subprime mess.

"There was no real news but the market seemed to be bouncing around," the trader said.

"Some people said it was the Fed chairman speaking, but I don't think so.

"People are worried about credit."

This trader said that "ultimately the junk market has to reprice because investors are not being compensated for taking risk."

Flight to quality

The trader commented that triple-C paper was noticeably lower on Wednesday.

The source said that Realogy Corp.'s 12 3/8% senior subordinated notes due 2015 (Caa2/B-), which were priced in early April at 98.146 to yield 12¾%, traded down to lows of 87½ bid, 88½ offered on Wednesday after rallying for the past couple of days.

The source marked the Realogy 12 3/8% notes down 2 points on the day.

The trader also spotted Swift Transportation Co. Inc.'s 12½% notes due May 15, 2017, which priced at par in early May, trading at 85 bid, and noted that the paper has been going down.

"There has been selective buying," said the source, who mentioned trading such names as Airgas, Inc., Range Resources, Ltd. and Pogo Producing Co.

Crude oil prices of $75 per barrel have gotten the attention of investors, the trader asserted, but added that it remains to be seen whether those investors intend to remain long the energy sector for a protracted period of time.

The trader especially drew attention to Pogo Producing, which is being acquired by Plains Exploration & Production Co.

"Plains had traded off a couple of points, and most of Pogo's paper had been trading at a discount, and gravitated toward the 101.0 change of control," the trader said, recounting that Pogo's outstanding issues include 6 5/8% notes, 6 7/8% notes, 7 5/8% notes and 8¼% notes, the latter currently callable and expected to trade to the call price.

All except one were firmer on the day.

The Pogo 6 5/8% notes due 2015 last traded at 100½ bid, but had been pretty actively changing hands at 101 bid, the source said.

Meanwhile the Pogo 6 7/8% due 2017 had been trading right around the 101 change of control level.

The 8¼% due 2011 had been trading at 102½ bid; 102.75 is the 30-day call price.

All were firmer on the day with the exception of the 7 5/8% due 2013, said the trader, adding that those bonds were a little weaker at 101½ bid, 101¾ offered. They had been at 102 bid, 103 offered before the deal was announced.

"There has been more selling of triple-C and more buying of single-B in the last couple of days," the trader summed up.

"It seems that people are moving to higher quality, in case we have a downdraft."

Delphi sharply higher

News that auto parts-maker Delphi has accepted a $2.55 billion offer led by Appaloosa caused one market source to mark the bankrupt company's bonds sharply higher on Wednesday.

Delphi's long bond, the 7 1/8% notes due 2029, was marked at 123¾ bid, up from 119½ bid at Wednesday's close. Another source spotted that paper at 122½ bid, 125½ offered.

Meanwhile Delphi's 6½% notes due 2013 went out Wednesday at 120 bid, up from the previous close of 116 3/8 bid. Another source gave a spot of 118.50 bid, 121.50 offered.

And the Delphi 6½% notes due 2009 were at 122¾ bid, up from Tuesday's 119 bid. Another source saw that paper trade at 121 bid, 124 offered.

A market source said that Delphi will file motions in federal court seeking an expedited hearing on the Appaloosa offer.

Automotive bonds mostly lower

A hedge fund manager told Prospect News that the bonds of General Motors Corp. opened the Wednesday session lower.

The source said that GM's long bond, the 8 3/8% due 2033, traded as low as 88 bid, 88½ offered during the session, and added that it had closed Tuesday at 89¾ bid, 90¼ offered.

But by the Wednesday close, GM's 8 3/8% notes had made up some of the lost ground and were seen going home at 89 bid, 89½ offered, off ¾ point on the day, the source said.

Another market source marked GM's 8 3/8% bonds at 89 bid, down from 89¾ bid at Tuesday's close.

This same source also spotted the long bonds of Ford Motor Co. lower: the Ford 7.45% notes due 2031 closed Wednesday at 78¼ bid, down from the previous close of 78½ bid.

However the source had shorter GM paper higher on Wednesday. He said the GM 7 1/8% notes due 2013 closed at 93½ bid, up from Tuesday's close of 93¼ bid.

Meanwhile General Motors Acceptance Corp.'s 8% bonds due 2031 were marked sharply lower at 97 bid, down from Tuesday's close of 99 bid.

Spectrum lower on warning

Spectrum Brands, Inc.'s debt was seen lower, with a market source saying its debt started off down 2 points on Wednesday.

The company's 11¼% notes began the session at 81¼ bid 82 offered, while its 7 3/8% notes due 2015 were at 71¾ bid, 72½ offered.

The source noted that a substantial amount of bonds had traded at 1:30 p.m. ET at 72¾ bid, and summarized that the paper was off 1½ points on the day.

Last Thursday Spectrum announced that it anticipates that full year 2007 sales and EBITDA will be lower than previously anticipated.

The company lowered projections due to unfavorable weather conditions experienced during the fiscal third quarter, particularly the impact of drought conditions across much of the country, which had a negative impact on its home & garden business, as well as lower than expected European battery sales and a cautious outlook on the part of U.S. retailers regarding inventory levels, which caused a shortfall in projected results for Global Batteries and Personal Care.

Elsewhere prices for existing issues of Rite-Aid Corp. were lower.

The Camp Hill, Pa., drug store chain's 7½% senior secured notes due 2015 ended the session at 96¼ bid, down from 97 7/8 bid at Tuesday's close, according to a market source.

Meanwhile Rite Aid's 8 1/8% senior secured notes due 2010 closed at 101¼ bid, down from 101 3/8 bid on Tuesday.

Also trading lower were the bonds of Six Flags Inc.

The New York-based theme park operators' 9 5/8% notes due 2014 were 90¼ bid, down from 91 bid on Tuesday.

Meanwhile the company's 8 7/8% notes due 2010 97 ¾ bid at Wednesday's close, down from 98 bid on Tuesday.

And the Six Flags 9¾% senior notes due 2013 were 92 bid, down from 93 bid at Tuesday's close.

LBI Media raises $225 million

With prospective issuers recently pulling junk deals right and left, LBI Media, Inc. priced a $228.775 million issue of 8½% 10-year senior subordinated notes (B2/CCC+) at 98.350 to yield 8¾% on Wednesday.

The issue, which generated $225 million of proceeds, priced 12.5 basis points wide of the 8½% area price talk.

Credit Suisse, Deutsche Bank Securities and Wachovia Securities were joint bookrunners for the deal, proceeds from which will be used to refinance the company's 10 1/8% notes due 2012, to repay bank debt and for general corporate purposes.

LBI Media is a Burbank, Calif.-based operator of Spanish-language radio and television stations.

Allison to bring $1.1 billion

Elsewhere in the new issue market, an informed source told Prospect News that Allison Transmission is expected to launch a $1.1 billion two-part senior notes offering (Caa1) during July or August.

Citigroup, Lehman Brothers and Merrill Lynch & Co. will run the books for the offering that is expected to be comprised of cash-pay notes and toggle notes.

Proceeds will be used to help fund the acquisition of the company by The Carlyle Group and Onex Corp. from General Motors Corp.

Meanwhile, on deck for Thursday is Intergen Group's $1.975 billion equivalent multi-currency offering of senior secured notes (Ba3/BB-).

On Tuesday the Burlington, Mass., power generation company talked three tranches of 10-year notes as follows:

• Dollar-denominated notes are talked at the 8½% area;

• Euro-denominated notes are talked at the 8% area; and

• Sterling-denominated notes are talked at the 9% area.

Merrill Lynch & Co. is the bookrunner for the deal to refinance LBO-related debt.

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