GM gyrates on Delphi moves; Hertz readies $2.8 billion launch; funds see $250 million outflow

By Paul Deckelman and Paul A. Harris

New York, Nov. 28 - General Motors Corp. bonds moved up in early trading on Monday after troubled former subsidiary Delphi Corp. dropped its self-imposed deadline for reaching an agreement with its labor unions on the company's request for large pay and benefit givebacks. That action was seen as positive for GM's hopes that its largest single parts supplier can avoid a potentially disruptive strike. However, later in the day, the GM paper gave back those early gains to close basically unchanged.

Overall one sell-side source marked the market a quarter of a point higher as post-Thanksgiving trading got underway in junk. Another marked it up an "eighth to a quarter,"

One deal, a quick-to-market $50 million add-on from Omega Healthcare Investors, Inc., priced in the primary.

That news was eclipsed, however, as the investment banks popped the hood on the long anticipated LBO deal from Hertz Corp.

Ford Motor Co.'s soon-to-be divested car-rental unit was heard by syndicate sources to be getting ready to take its planned $2.8 billion dual currency bond offering on the road at mid-week. That prospective bond sale would help fund the roughly $15 billion leveraged buyout of Hertz.

Roadshow details were also heard for two other - considerably smaller - deals, for Plastipak Packaging Inc. and for Clarke American Corp.

And word emerged during the session that some $250 million more left high-yield mutual funds in the week ended this past Wednesday (Nov. 23) than came into them, according to market participants familiar with the weekly fund-flow statistics compiled by AMG Data Services of Arcata, Calif. Those numbers generally circulate in the market on Thursday afternoons, but were delayed this week due to the Thanksgiving holiday break, which saw the debt markets closed on Thursday and operating on a very thinly attended half-day schedule on Friday.

It was the 11th straight weekly outflow, following the $162.3 million hemorrhage seen in the previous week, ended Nov. 16. In that time, outflows have totaled $3.306 billion, according to a Prospect News analysis of the AMG figures.

Outflows have now been seen in 12 weeks out of the last 13 and in 18 weeks out of the past 20. During that latter timeframe, net outflows have totaled about $4.179 billion - up from the previous week's $3.929 billion total, according to the Prospect News analysis.

For the year so far, outflows have now been seen in 38 weeks of the 47 since the start of the year, against only nine weekly inflows. Cumulative net outflows for the year total around $11.218 billion, according to the Prospect News analysis, up from $10.968 billion last week.

It is now pretty clear that the junk funds have reverted to the trend seen earlier in the year, when outflows totaling about $6.776 billion were seen in 15 straight weeks from mid-February through late May, according to the analysis. After that, there was a short period in which no clear trend could be seen, with about a month of inflows and outflows showing up on alternating weeks - but since July money has been almost consistently flowing away from the funds.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants, since they are considered a generally reliable barometer of the overall liquidity trends - and because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Omega drives by

The only deal to price during the week's opening primary market session was Omega Healthcare Investors' $50 million add-on to its 7% notes due April 1, 2014 (B1/BB-) which priced at 100.25 to yield 6.948%.

No official price talk had been circulated, sources said.

Deutsche Bank, UBS Investment Bank and Banc of America Securities ran the books for the debt refinancing deal.

The original $200 million issue priced at par on March 15, 2004, so the Timonium, Md.-based long-term care real estate investment trust shaved a little better than a nickel off of its interest rate with the add-on notes.

The Hertz deal

The Hertz LBO deal, which has generated conversation in high yield since early summer, took shape as 2005 business during the Monday session.

Hertz will start a roadshow Wednesday in Europe for its $2.80 billion equivalent bond offering, with the U.S. roadshow to get underway on Dec. 5.

The Park Ridge, N.J, vehicle rental company plans to sell $2.2 billion equivalent of eight-year senior notes (expected ratings B1/B) and $600 million of 10-year senior subordinated notes (expected ratings B3/B).

Hertz plans to issue both the senior and subordinated notes in dollar-denominated and euro-denominated tranches. The tranche sizes remain to be determined.

Deutsche Bank Securities, Lehman Brothers, JP Morgan, Goldman Sachs & Co. and Merrill Lynch & Co. will be joint bookrunners.

The company will also obtain a $3.85 billion credit facility.

More disciplined market?

Late Monday Prospect News asked one sell-side official not involved in the deal whether the December 2005 high-yield primary is ready to digest sizable issuance from Hertz.

The official answered in the affirmative.

"The market feels better, actually," the sell-sider commented early in the evening.

"We had a couple of big deals last week that have been trading up," the source added, pointing to Avago Technologies Finance Pte. Ltd.'s $1 billion three-tranche deal, which priced on Nov. 21, and Wind Acquisition Finance SA (Wind Telecomunicazioni)'s €1.25 billion of 10-year senior notes in two tranches which priced the following day.

"The market is clearly more disciplined as we're seeing with pricings getting pushed back," the official said.

"But the market has liquidity, and the fact that those two deals trading well is a good sign."

Assessing Wind

When Prospect News pointed out that Wind, the Italian telecom, priced its euro-denominated €825 million tranche at par to yield 9¾%, on the tight end of the 9¾% to 10% price talk, while its dollar-denominated $500 million tranche came at par to yield 10¾% on the wide end of the 10½% to 10¾% price talk, this sell-sider, who was not in the deal, said that the transaction made sense that way.

"Even at those levels the dollar piece is still rich to investors," the source commented. "Even though it came at the wide end it was still priced aggressively.

"The euro deal was a better deal for investors if you look at it on a swap curve basis."

A building calendar

As sources forecast in the run-up to Thanksgiving, the forward calendar did build as the market went to work on Monday.

Clarke American Corp. will begin a roadshow on Tuesday for its $175 million offering of eight-year senior notes (B2/B-).

Bear Stearns & Co. and JP Morgan are joint bookrunners for the acquisition deal from the San Antonio financial documents company.

Clarke American is expected to price next week.

Closer at hand is the expected pricing of Plastipak Holdings, Inc., which will begin a three-day investor roadshow Tuesday in New York City for its $250 million offering of 10-year senior notes.

The debt refinancing deal is expected to price by the end of the week, with Banc of America Securities, JP Morgan and Goldman Sachs & Co. running the books.

Plastipak takes its place among several non-U.S. issuers expected to complete deals before the Friday close.

The biggest offering comes from German tourism company TUI AG, which plans to sell approximately €1 billion via Citigroup, Deutsche Bank Securities, HVB and The Royal Bank of Scotland.

The week's other two anticipated bond issuers are from Asia.

Indonesian coal mining firm Adaro Finance BV is the in the market with $300 million of five-year senior secured (Ba3) via Goldman Sachs and JP Morgan, and Thai telecom True Corp. PCL is expected to price $225 million of seven-year senior notes (B2/B+) via JP Morgan.

Secondary quiet

Back in the secondary sphere, things were described as pretty quiet. "People were back from their Thanksgiving," a trader said, "and it doesn't seem like anything crazy happened."

He said that the upcoming Hertz deal would "give [junk market participants] something to look forward to" starting later in the week, when the deal actually goes on the road, "but it didn't seem like there was a heck of a lot [Monday]."

He said that "we'll have to watch this GM news, wait and see [Tuesday]". Headlines came across the tape late in the day indicating that the carmaker would delay its 10-Q filing with the Securities and Exchange Commission.

"The market overall had a generally positive tone," another trader said - "nothing monumental, but slightly more positive than usual." This, he said was "led by the conversation that GM was going to inject itself into the Delphi-UAW situation."

GM up, then down

GM, which spun Delphi off in 1999, said it was willing to forego, at least temporarily, scheduled price cuts on Delphi components which the two companies had previously contractually agreed upon - a big boost for the bankrupt Troy, Mich.-based maker of automotive electronics and other components since former parent GM remains Delphi's single largest customer.

With that helping hand from GM, Delphi, in turn said it would hold off for more than a month on its previous threat to ask the bankruptcy court to void its collective-bargaining contracts with the United Auto Workers union and several smaller labor groups, a threat which had the unions talking about a possible strike.

Delphi - which seeks to knock its roughly $65 per hour average cost per hourly employee down to the $16-to-$18 level of pay and benefits that most other auto components companies pay - said it would not go into court to seek to void the contract till at least Jan. 20 - well beyond its initial Dec. 16 self-imposed deadline, giving the company more time to perhaps come to a consensual agreement with the UAW and the other unions on reducing its labor costs.

That extension of the drop-dead deadline for reaching agreement on the concessions Delphi says it needs to stay in business is considered good news for GM, since it assures the carmaker of a continued steady flow of parts to its manufacturing operations - operations which could have been curtailed or even crippled had the UAW decided to call Delphi's bluff and strike if it voided its contract.

That "initially pushed GM paper up," with the carmaker's benchmark 8 3/8% notes due 2033 moving up to 70 bid, 71 offered, up about a point from where they had left off in Friday's extremely light dealings.

"But GM being GM," he continued, "they managed to give all of that back," and finished unchanged at 69 bid, 70 offered.

Late in the day - when trading was pretty much wrapping up - "there was some rumbling about GM holding up its 10-Q," but he said that on closer examination, it appeared to be "inconsequential, maybe a one penny (per share) adjustment to a third-quarter '04 10-Q," and the 8 3/8s closed actually up half a point on the session at 69.5 bid, 70.5 offered.

A trader at another shop saw that same up-and-down pattern in the bonds of GM's financing arm, General Motors Acceptance Corp.

"Based on the Delphi news," he said, GMAC's benchmark issue, the 8% notes due 2031, pushed as high as 101 bid during the session, up from their opening levels at 99.5 bid, 100 offered. But then later on, "they settled back down," to close pretty much unchanged from the opening.

Yet another trader agreed that the GMAC bonds initially "traded up, in line with GM's equity" on the news Delphi is giving its talks with the union a chance. He saw the 8s get up to 100.5 bid, 101.5 offered from an opening around 99.5 bid, "but then they dropped back and pretty much gave back all of their gains," closing the day up just ¼ point at 99.75 bid, 100.5 offered.

Unisys higher

Outside of the automotive area, the first trader said, "Unisys [Corp.] paper was up a little bit," with the Blue Bell, Pa.-based technology solutions provider's 8% notes due 2012 a point better at 89.5 bid, 90.5 offered.

There was "no news there," he said, "just some value shopping," I guess.

Kodak steady at better levels

He further saw Eastman Kodak Corp.'s bonds pretty much unchanged on the session, but up some 1½ points from where they were a week earlier, before the Rochester, N.Y.-based photography and imaging products giant announced that it had reached an income tax-refund settlement with the Internal Revenue Service that will boost its fourth-quarter earnings by between $15 million and $25 million.

There were "some buyers out there," but Kodak's 7¼% notes due 2013 held steady at 93 bid, 94 offered, the level to which they had moved after last week's announcement.

B/E gains on stock sale news

A market source quoted B/E Aerospace Inc.'s bonds all up around a quarter point, helped by the news that the Wellington, Fla.-based maker of aircraft cabin components will sell 13 million shares of common stock, with a potential greenshoe of up to another 2 million shares, and then use the proceeds to take out its $250 million of 8% notes due 2008.

Those 8s moved up to 100.5 bid, its 8½% notes due 2010 firmed to 106.5, and its 8 7/8% notes due 2011 improved to 105.25.

B/E also said that a tax boost related to the planned debt redemption and a general improving financial outlook will boost its 2005 results by about 85 cents per share, although excluding this item, it said it was sticking to previous guidance of 50 cents per share, slightly less than the 53 cents that Wall Streeters, on average, are looking for.

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