General Motors, Elan bonds up; downsized Team Health deal prices

By Paul Deckelman and Paul A. Harris

New York, Nov. 18 - General Motors Corp.'s bonds were cruising along in the upside lane for a second straight session Friday, riding the momentum of Thursday's assurances by the company's chief executive officer that GM is not headed for bankruptcy and perhaps helped as well by indications that the bloated automotive giant will soon begin the next step in its painful - but ultimately necessary - effort to bring its operations and expenses more in line with its reduced sales base.

Elsewhere, Elan Corp. plc's bonds were seen solidly higher after the Irish pharmaceuticals maker and partner Biogen Idec Inc. announced that U.S. regulators will accelerate their review of the companies' suspended multiple sclerosis drug, Tysabri - a key step in their efforts to get the medication back on drugstore shelves.

Late Friday one sell-side official estimated that the broad high-yield market was slightly weaker after a very quiet trading session.

In the primary market, no deals were priced although terms emerged Friday morning on a downsized Team Health Inc. transaction that priced Thursday night. Network Communications Inc. restructured its upcoming eight-year bond issue.

Team Health's downsized $215 million

Although most of the market did not hear terms until Friday morning, Team Health's downsized $215 million issue of eight-year senior subordinated notes (Caa1/B-) actually priced Thursday night.

The notes came at par to yield 11¼%, at the wide end of the 11% to 11¼% price talk.

JP Morgan, Lehman Brothers and Merrill Lynch & Co. were joint bookrunners for the LBO deal from the Knoxville, Tenn., provider of outsourced medical staffing.

The issue was downsized from $265 million. The $50 million by which the bond offering was downsized was shifted to the company's term loan, which was upsized to $425 million from $375 million.

When the new Team Health 11¼% senior subordinated notes due 2013 were freed for secondary dealings, they moved up to 100.75 bid, 101.25 offered from their par issue price earlier in the session.

Six of nine at the wide end

With the downsized Team Health deal added to the tally, the week of Nov. 14 came to a close having seen $1.67 billion price in nine dollar-denominated tranches.

Six of those nine tranches priced at the wide end of price talk.

At Friday's close the 2005 year-to-date issuance total stood at just over $88 billion in 344 tranches whereas by the Nov. 18, 2004 close the market had seen $122.4 billion in 497 tranches, according to Prospect News data.

Victor Consoli, head of high yield research for Bear Stearns & Co., estimates that issuance is down 27% year-over-year versus 2004, but added that that is an improvement over the negative 35% pace which was seen through most of this year.

Network Communications restructures

Network Communications Inc. issued price talk of 10½% to 10¾% on its restructured $175 million offering of eight-year senior notes on Friday.

The offering, which had previously been marketed with a senior subordinated structure, is expected to price on Monday or Tuesday.

The higher seniority is expected to result in higher credit ratings. Moody's Investors Service is expected to raise its rating on the notes to B2 from B3 and Standard & Poor's is expected to raise its rating to B- from CCC+.

Credit Suisse First Boston has the books for the debt refinancing deal from the Lawrenceville, Ga. real estate information service.

The run-up to Thanksgiving

During the three sessions before the bond market breaks off for the Thanksgiving holiday in the United States, the market anticipates seeing just over $2.5 billion of dollar-denominated business price.

In addition to Network Communications terms are expected early in the week on:

• Avago Technologies Finance Pte. Ltd.'s $1 billion in three tranches: $750 million in senior paper (B3/B) featuring eight-year fixed-rate notes talked at 9¾% to 10% and 7.5-year floating-rate notes talked at Libor plus 525 to 550 bps, also $250 million of 10-year senior subordinated notes (Caa2/CCC+) talked at a yield in the 11½% area. Lehman Brothers, Citigroup and Credit Suisse First Boston are joint books;

• Metals USA Inc.'s $275 million senior secured notes (B3/B-) in two parts: $75 million seven-year floating-rate notes talked at Libor plus 600 to 625 bps and $200 million 10-year fixed-rate notes talked at 11% to 11¼%. Credit Suisse First Boston and CIBC World Markets are joint bookrunners; and

• Greektown Holdings LLC/Greektown Holdings II Inc.'s $185 million of eight-year senior notes (B3/CCC+) via Merrill Lynch, talked at 9¾% to 10%.

Much of the remaining business is expected to price Tuesday or Wednesday. It includes:

• Chaparral Energy Inc.'s $325 million of 10-year senior notes (B3/B) via JP Morgan;

• Tronox Worldwide LLC's $350 million of seven-year senior notes (B1/B+), with Lehman Brothers and Credit Suisse First Boston as joint bookrunners; and

• Gibraltar Industries Inc.'s $200 million of 10-year senior subordinated notes (Ba3/B+) via JP Morgan.

The only anticipated euro-denominated issuance for the week is expected to come from Wind Telecomunicazioni subsidiary Wind Acquisition Finance SA, which is in the market with €1.250 billion equivalent of 10-year senior notes in dollar and euro tranches. Deutsche Bank Securities, ABN Amro and Banca IMI are running the books for the Rome-based telecom's deal.

GM gains

Back among the established issues, GM was "up significantly," a trader said, quoting the company's benchmark 8 3/8% notes due 2033 as having risen all the way up to 71 bid, 72 offered, which he saw as a five-point rise on the day. The bonds of GM's financing arm, General Motors Acceptance Corp., were likewise up solidly, its 8% notes due 2031 finishing at 100.5 bid, 101.5 offered, up four points.

At another desk, a trader saw the GM 8 3/8s end at 70 bid, 71 offered, off their peak at 71 bid, but still well up from a Thursday close at 68.375. He saw the GMAC 8s press as high as 101 before closing at 100.75 bid, 101 offered, after having finished Thursday at 98.75, "so those babies were really up."

It was the second consecutive session that GM's bonds, and its shares, were on the rise, bouncing back from their recent respective drubbings with the help of chairman and CEO Rick Wagoner's declaration in a letter to company employees that GM - despite its recent troubles, which include sagging sales, burgeoning raw materials costs and employee and retiree healthcare expenses and the need to restate some past results, costs - has "absolutely no plan, strategy or intention . . . to file for bankruptcy," contrary to some of the recent speculation in the junk bond and, especially, the credit default swap markets.

Wagoner said that the company has "a robust balance sheet," with $19 billion in cash and $16 billion in trust fund assets earmarked for retiree health care.

GM also announced during the week that the United Auto Workers had agreed to an unusual mid-contract concession on employee and retiree healthcare costs that will shift some of the GM's estimated $5.6 billion annual burden onto the workers and the pensioners, saving the company $1 billion before taxes now and as much as $15 billion in the long run.

And the Detroit News was reporting Friday that GM could soon announce plans a series of plant closures would eliminate at least 25,000 hourly jobs over the next three years. The paper said that such an announcement by the ailing automaker could come as early as next week, maybe even before Thanksgiving, although the timing of the announcement depends on the company's ongoing talks with the UAW, which must sign off on any such actions. Under terms of the current union contract, GM is effectively barred from any such plant closures until the agreement expires in September 2007, although it could "idle" the plants by temporarily halting production at them before then. GM had previously indicated that it would unveil plans for a restructuring of its operations by year end.

Other auto names better

GM's rebound was also seen pulling the other auto names along with it on Friday, with rival auto giant Ford Motor Co.'s benchmark 7.45% notes due 2031 seen three points better at 70.5 bid, 71.5 offered, and the latter's Ford Motor Credit financing arm's 7% notes due 2013 up two points at 89.5 bid, 90.5 offered, a trader said.

However, a second trader said that while the flagship Ford bonds were up around 71.5, he had seen them Thursday around 70, so, "they were up, but not as much" as the GM paper was.

Also benefiting were the auto supplier names such as Visteon Corp., whose 8¼% notes due 2010 were two points better at 87 bid, 88 offered, a trader said, while Dura Automotive Systems Inc.'s 9% notes due 2009 and ArvinMeritor Inc.'s 8¾% notes due 2012 were each up two points, at 58-59 on the Duras and 91.5-92.5 on ArvinMeritor, "so all the autos were up about two points."

"It looks like autos did a lot better, especially GM," another trader observed. "It was a merciful close to a long week for a lot of these guys, who got buffeted around."

Elan higher on Tysabri filing

Apart from the autos, the only name that was really doing much of anything, traders said, was Elan, whose 7¾% notes due 2011 were seen up 1½ points to 91 bid, 92 offered, while its 7¼% notes due 2008 were ¾ point better at 98.25 bid, 98.75 offered, the latter trader said.

The bonds firmed after the U.S. Food and Drug Administration granted a priority review for the multiple sclerosis drug Tysabri, which was jointly developed by Elan and Cambridge, Mass.-based Biogen Idec.

The drugmakers voluntarily yanked the drug off the market early this year - only several months following its introduction in the fall of 2004 - after reports surfaced linking its use to three cases of progressive multifocal leukoencephalopathy, or PML, a rare and usually fatal brain disease. The FDA also ordered the drug off the market. Following the February event, a subsequent review of several thousand people who had taken Tysabri in clinical trials produced no more confirmed cases of PML, leading to the FDA's review decision.

The FDA's move to grant the expedited review means a decision about the drug returning to the U.S. market could be made in six months rather than the standard 10 months. While both companies are heavily invested in Tysabri, Elan is much less diversified than Biogen Idec and much more dependent on the medication's successful return to the market.

Rural Cellular better

Apart from the autos and Elan, there wasn't much happening; one trader said that from where he sat, the rest of the market was "even slower than it had been [immediately going into] Veteran's Day."

A trader saw Rural Cellular Corp.'s 9¾% senior subordinated notes due 2010 up two points to 99 bid, 99.5 offered, given a boost by news elsewhere in the wireless sector that Alltel Corp. will acquire Midwest Wireless Holdings for nearly $1.1 billion in cash, adding the latter's 400,000 customers in rural Minnesota, Wisconsin and Iowa to its existing Midwestern footprint.

However, he saw "no movement" in the bonds of another sector player, Suncom Wireless Inc. - the old Triton PCS - whose 9 3/8% notes due 2011 were unchanged at 75 bid, 76 offered.

Also on the telecommunications front, AT&T Corp. 's 6% notes due 2009 were seen unchanged at 101.25 bid, 101.75 offered, as the Bedminster, N.J.-based long-distance giant returned to its prior status as an investment-grade credit, after being upgraded by both Moody's Investors Service and Standard & Poor's once its acquisition by SBC Communications Inc. was completed. It had lost its coveted high-grade rating from all three major agencies in the summer of 2004.

SBC - which, ironically, was spun off from the once-dominant telephone industry giant, then known as American Telephone & Telegraph Corp., as a "Baby Bell" regional phone company, a result of the court-ordered break-up of "Ma Bell in the early 1980s - said that California state utility regulators had approved its $16 billion acquisition of its former corporate parent, thus removing the last legal roadblock to the sale. San Antonio-based SBC will assume its venerable new unit's globally familiar name and will trade its own current run-of-the-mill "SBC" stock ticker symbol for Telephone's iconic "T".

Moody's raised AT&T's euro-denominated notes to A2 from Ba1, in line with SBC's ratings, and upped its other debt to Baa2, while S&P raised its corporate credit and senior unsecured debt ratings five notches to A from BB +, also in line with SBC's high-grade status. Fitch Ratings upgraded the credit to A from BB+.

SBC also said that it would guarantee some of AT&T's debt, specifically, €721.2 million of Telephone's 7¾% notes, which are slated to come due a year from now.

(Ronda Fears contributed to this report)

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