Auto supplier sector continues fall; Saur euro deal prices; Movie Gallery hits the road

By Paul Deckelman and Paul A. Harris

New York, April 15 - The beleaguered automotive supplier sector continued to speed in reverse Friday, towed lower by a fall in General Motors Corp. bonds as the markets speculated that the Detroit giant would post its worst quarterly loss since 1992. Collins & Aikman Corp.'s bonds led the way, and even an announcement by Tower Automotive Inc. that the Novi, Mich.-based vehicle frame maker will close three plants and cut its workforce by 800 failed to give that name a boost. On the upside, Saks Inc. bonds managed to eke out a gain despite the Birmingham, Ala.-based department store operator delaying filing its 2004 annual report.

In the primary market, dollar-denominated issuers thought better than to proceed with transactions during Friday's primary market session, as the high yield market continued to slide in concert with the stock market.

One source said that the slide really began in earnest one week previous, on April 8. However it became more precipitous during the final two sessions of the April 11 week, the source added.

One deal did price - a €265 million issue of 10-year notes from French water treatment firm Saur Group SA, which came at the wide end of talk. Back in the States, the curtain is expected to rise Monday on The Movie Gallery Inc.'s planned offering of eight-year notes, as it takes to the road to market the deal to investors. The Dothan, Ala.-based Number-Three U.S. video rental chain plans to use the proceeds in its planned acquisition of larger industry peer Hollywood Entertainment Corp.

Back in the secondary realm, the auto sector was "pretty ugly," a trader said, with GM - still nominally an investment-grade name, but one which now trades like a troubled junk bonder - leading the way downward.

He quoted GM's 8 3/8% notes due 2033 as having widened out almost 100 basis points from Thursday's closing levels to a bid yield about 700 bps over the comparable Treasury note. On a dollar-price basis - which many houses are now starting to apply to GM, despite its still being investment grade, at least for now - the bonds plunged to about 74 bid, 75 offered from prior levels at 79 bid, 80 offered.

With the week coming to a close, some in the financial markets were focusing on what is going to happen next week - specifically, on Tuesday, when GM releases its 2005 first-quarter results. GM shocked the markets when it warned last month that it expects a loss for the quarter - Wall Street had been expecting it to break even - and foresaw no better than a $1 to $2 per-share profit for the full 2005 year, down as much as 80% from prior forecasts as high as $5 per share. Now, some analysts have been saying that the carmaker might have its worst quarter since 1992, with its core North American automotive operation seen losing as much as $1 billion for the quarter.

On top of that, published reports during the week noted that accounting experts were questioning how GM reported certain transactions with former subsidiary Delphi Corp., which is also GM's single largest supplier.

The trader said the continuing angst about GM and its sharp fall "started the day - and with IBM's news late last night [Big Blue missed Wall Street's per-share earnings forecast by a nickel], I think people expected a significant sell-off. The market definitely was quoted off significantly right out of the box" Friday morning, but there was "not a lot of trading."

For instance, he saw Delphi's paper quoted down as many as seven points early on, with investors apparently spooked by the continued weakness in former corporate parent and still major customer GM. "But there were no real trades. By 9 [a.m. ET] the market had come back, to be quoted pretty much unchanged."

Collins & Aikman lower

The exception to that rule, he said, was Collins & Aikman, whose Collins & Aikman Products Inc. 10¾% senior notes due 2011 ended at 76 bid, 77 offered, down two points, while its 12 7/8% subordinated notes due 2012 fell to 36.5 bid, 37.5 offered, down about four points, continuing the recent slide seen in the Troy, Mich.-based automotive interior components supplier despite an absence of fresh negative news about that specific company.

Another trader saw the Collins & Aikman senior notes at 75 bid, 76 offered and the subordinated bonds at 37 bid, 39 offered, both down four or five points on the day.

And at another desk, Collins & Aikman's seniors were being quoted at 76, down 2½ points, with the junior bonds seen down five points on the day to 38.

Elsewhere in the auto sector, Delphi's 6½% notes due 2013, after having been quoted sharply lower earlier in the session, were seen going home down only half a point at 74.5 bid, 75.5 offered.

Durra Operating Corp.'s 9% notes due 2009 finished the session at 72 bid, 73 offered, down a point on the day.

Visteon Corp.'s 7% notes were seen going out at 76.5 bid, 77.5 offered, down half a point.

Among the bankrupt auto sector names, RJ Tower Corp.'s 12% notes due 2013 were seen down a point at 53 bid, 55 offered, not given any boost by news of belt-tightening plans by management - Tower said it will cut 800 employees by closing plants in Belcamp, Md., Bowling Green, Ky., and Corydon, Ind., by June 30, and will also reduce the workforce at another factory, in Granite City, Ill.

Eagle-Picher Industries Inc.'s 9¾% notes due 2013 were seen down a point at 66 bid, 68 offered.

Broader market "heavy"

Even outside the automotive sector, the operative word for market tone was "heavy." A market source saw Levitz Furniture's 15% notes due 2011 down two points on the day at 88 bid and its 12% notes, also due 2011, down a full five points to 80 bid.

However, that same retailing sector saw Saks bonds "up a bit," in the words of a market source who saw the company's 7 3/8% notes due 2019 up a point at 91, while its 7½% notes due 2010 were up 2½ points at 99.25.

The rise in the Saks bonds came even as the retailer revealed that an initial internal probe into payments from its vendors had been broadened to include related financial and accounting issues - and that the company was delaying its filing of its 10-K annual report with the Securities and Exchange Commission.

The company also said some unidentified employees had been put on leave.

There was some speculation that the bonds had been helped by news that Saks is closing its Off Fifth store in Myrtle Beach, S.C. , the latest in a series of such closes, raising market hopes that some of the closed stores might be sold.

Calpine hurt by rumors, rebounds

Back on the downside, a trader said that around noontime ET, Calpine Corp. "started to decay. Apparently, there were some rumblings, and rumors around that they had not made an interest payment on some bank debt and possibly on a convertible issue."

He said that investor angst was compounded by the fact that even as they "tried to get some clarity," the San Jose, Calif.-based power generator "wasn't answering the phones, wasn't answering the questions, blah blah blah."

He noted that "you take it with a grain of salt - but in this [market environment] it's magnified given the negative sentiment."

He said the Calpine 8¾% notes due 2007, after opening at 75.5 bid, 76.5 offered, went down to 71 bid, 72 offered, but then, "some of the majors said they had talked to the company, and that it was not true [that any interest payments had been missed], and they came back to finish at 74.5 bid, 75.5 offered. So they bounced back after the rumor was dispelled."

Another market source quoted Calpine lower on the day, with its 7 5/8% notes due 2006 and 7 7/8% notes due 2008 both a point lower on the day, at 94.5 bid and 67.5 bid, respectively. He saw its 8½% notes due 2011 down 3½ points at 63.

The first trader also pointed out that the Calpine 8¼% notes scheduled to come due in August dropped to 95.5 bid, 96.5 offered from their prior levels above par.

"Apparently, the company's got the ability to take out [this bond] or to finance the remainder that were not tendered for," but investor fears that the company might fail to make good on the bonds sent them lower.

"In this environment, it's not too hard to get people nervous," he concluded.

Despite Friday, primary picked up

With no dollar-denominated issues pricing Friday, the week of April 11 came to a close having seen $2.2 billion of bonds sold in 10 dollar-denominated tranches.

Hence the April 11 week was the biggest in terms of issuance since the week that began on March 7 of the present year, which saw $2.75 billion price in 15 tranches.

In fact the April 11 week saw more dollar-denominated issuance than the previous three weeks combined, which totaled $2.16 billion.

The Friday session came to a close with $33.9 billion having priced in 130 tranches year to date, as 2005 continues to fall further and further behind in year-over-year issuance. At the same point last year, the market had seen just shy of $60 billion price in 205 tranches.

Saur at wide end

The session's only transaction came from Saur Group SA, which priced a €265 million issue of 10-year senior notes (B1/B+) at par to yield 8 3/8%, on the wide end of the 8 1/8% to 8 3/8% price talk.

BNP Paribas ran the books for the deal which the company brought in order to repay leveraged buyout-related debt.

Even in the wake of the Saur transaction, the euro-denominated forward calendar remains notably robust, with half a dozen issues totaling €2.35 billion thought to be in the market.

Klockner announces

Duisburg, Germany-based metal distribution company Klockner Investment SCA threw its hat into the euro-ring on Friday, announcing plans to start roadshowing its €350 million offering of 10-year non-call-five senior notes during the mid-part of the coming week.

Credit ratings are expected to come in the low single-B range.

JP Morgan and Barclays Capital have the books for the LBO deal.

Movie Gallery, Gardner Denver announce

Meanwhile a pair of U.S. companies announced junk bond deals related to acquisitions.

Movie Gallery Inc. will begin a roadshow on Monday for its $325 million offering of seven-year non-call-two senior floating-rate notes via Wachovia Securities.

And Quincy, Ill., pump and compressor company Gardner Denver Inc. announced plans to sell $125 million of eight-year senior subordinated notes (B).

Bear Stearns & Co. and JP Morgan will be the underwriters, according to a market source, who added that the roadshow is expected to begin in the near future.

The better part of valor

One sell-side source said Friday that although some observers may have been expecting terms on two and possibly three dollar-denominated deals during the Friday session, the fact that none priced should have surprised no one.

"There's no guarantee things will be better on Monday than they were today," the official said.

"But as ugly as it was out there today you can't blame anyone for taking a step back."

The source added that with the stock market in full retreat on Friday, the high-yield market steadily sold off.

"And we were seeing quite a bit of volume today," the source added.

Talk on Ziff Davis

One deal that some observers were watching in terms of a possible Friday transaction was Ziff Davis Holdings Inc.'s $205 million offering of seven-year senior secured floating-rate notes (B3/CCC+).

Although no terms emerged, price talk of Libor plus 500 to 525 basis points was heard on the Bear Stearns-led deal from the New York City-based integrated media company.

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