GM gyrates on Delphi concerns; Movie Gallery climb continues; American Greetings plans deal

By Paul Deckelman and Paul A. Harris

New York, May 12 - General Motors Corp. bonds were seen bouncing around at mostly higher levels Friday before coming in from their highs to end largely unchanged to up just a bit as the Detroit-based automotive giant's shares got a boost from an analyst upgrade and speculation that it won't be victimized by a threatened strike at key parts supplier Delphi Corp., as well as hopeful projections by a key GM executive, echoing what his boss said earlier in the week.

Elsewhere, Elan Corp. plc's bonds were seen higher, in line with a rise in its American Depositary Receipts; there was some speculation in the market that the Irish drug company, which recently reported a smaller first-quarter loss versus a year earlier, may soon get approval to put its Tysabri multiple sclerosis drug back on pharmacy shelves.

On the downside, a smaller year-over-year loss did nothing to help the bonds of beleaguered small-appliance maker Salton Corp.

Out of the distressed-bond precincts came word that Movie Gallery Inc. - which traded up sharply over the previous two sessions, first on the expectations that it would report much better-than-expected numbers, and then on the fact - continued to firm Friday, though the rise was nowhere nearly as dramatic as the 10-point jump seen on Thursday.

In the primary arena, participants took a breather after Thursday's eventful session, which saw upsized new deals price for Amkor Technology Inc. and Dean Foods Co. - Dean's an opportunistically priced drive-by issue, as was Dobson Cellular Services Inc.'s add-on to a tranche of existing notes. No new deals were heard by syndicate sources to have priced Friday, but they did note several prospective upcoming deals, including American Greetings Corp., Superior Energy Services, Inc. and MTR Gaming Group Inc.

Back in the secondary sphere, a trader said "a lot of things got priced yesterday [Thursday] - and are trading under water."

He said that Dean Foods' new 7% notes due 2016 had eased to 99 bid, 99.5 offered from their 99.604 issue price on Thursday; Amkor's 9¼% notes due 2016 had slipped to 99.5 bid, par offered from their par issue price; and Dobson's 8¾% notes due 2011 retreated to 104 bid, 105 offered, down from their 105 issue price.

GM gains, falls back

Back among the established issues, a market source saw GM's benchmark 8 3/8% notes due 2033 trade up most of the day, moving as high as bid levels approaching 78 - before dropping back from such peaks late in the afternoon to finish at 75.75, essentially unchanged on the session.

GM was "up about a quarter-point at the most" at the end of the day, said another trader, who also pegged those bonds at bid levels around 75.75-76.

Yet another trader who saw the 8 3/8s at that same level also saw the General Motors Acceptance Corp. financing arm's 8% notes due 2031 unchanged at 93.75 bid, 94.25 offered. And still another trader saw both the GM 8 3/8s and the GMAC 8s actually finishing a point lower, at 75 bid, 76 offered and at 93 bid, 94 offered, respectively.

The GM bonds had pushed upward for most of the day even as the New York Stock Exchange-traded stock also was firmer - although it ended well below its intra-day high of $26.66, going home at $26.05, up 28 cents (1.08%), on slightly higher-than-usual volume of 12.2 million shares.

The shares - and by extension, the bonds - had gotten somewhat of a boost earlier in the session, when KeyBanc Capital Markets boosted its recommendation on the Dow component's shares to "buy" from "hold previously." Analyst Brett Hoselton, in writing his upgrade message, opined that the automaker likely will avoid a devastating strike at Delphi, its bankrupt Troy, Mich.-based former subsidiary, which is still GM's single largest parts supplier.

Delphi is seeking big pay and benefit concessions from its unionized hourly workers, arguing that the contract structure it inherited when it was spun off by GM in 1999 is economically unfeasible. The United Auto Workers and several other unions, representing the 34,000 hourly employees, are resisting Delphi's efforts to lower its workers' pay, and have threatened to strike if the bankruptcy judge overseeing Delphi's reorganization grants the company's request to void its labor contracts before their scheduled 2007 expiration so it could impose a new, sharply reduced pay structure. A strike could prove devastating not only to Delphi but to GM as well, which counts on its problem child for a steady flow of parts to keep production running.

Hoselton, commenting on the three-way talks between Delphi, GM and the unions, said that even though they currently remain without a finished deal, the hardest part of those talks is over, with GM having recently agreed to fund buyouts for some 13,000 of the 24,000 Delphi workers represented by the UAW, and to let 5,000 more Delphi workers flow back to GM - all told, more than half of Delphi's unionized work force.

He said that the last remaining issue is wage subsidies for workers who don't accept the buyouts - declaring "we do not see this as a significant problem" the analyst predicts that GM, eager to preserve the labor peace and keep its production going unhindered, will in the end agree to supplement Delphi workers' reduced wages.

Also sounding a sunny note was GM chief financial officer Fritz Henderson, who met with automotive analysts earlier in the week, it was revealed Friday, and had told them he expects a deal with Delphi and the UAW to be inked within 30 to 60 days.

It was the second such hopeful pronouncement in recent days by a senior GM official; bonds and shares of both Delphi and GM - particularly Delphi - had moved solidly higher earlier in the week in response to GM chairman and chief executive officer Rick Wagoner's assertions that reaching a deal with Delphi and the UAW to avert a strike is a high priority for GM, and that he feels progress is being made and a strike can probably be avoided.

After several days of climbing sharply, Delphi's bonds have leveled off, with some in the market taking profits off those gains. A trader Friday saw its 6.55% notes due June 15 up ¼ point at 79.75 bid, 80.75 offered, while its 7% notes due 2029 were half a point better at 77.25 bid, 78.25 offered. However, another trader saw the company's bonds down a point, all trading around 78 bid, 80 offered. Delphi's Pink Sheets-traded shares jumped 14 cents (11.97%) to $1.31. Volume was a relatively heavy 11.4 million shares.

Elan rises in Tysabri hopes

Outside of the autosphere, a trader saw Elan's bonds up about a point on the session, its 7¾% notes due 2011 at 96.5 bid, 97.5 offered, and its 7¼% notes due 2008 at 99 bid, par offered. Another trader, while seeing the '11s half a point better, at 96.75 bid, 97.75 offered, saw the 71/4s unchanged at 99.25 bid, par offered.

"The stock was up," he said, "but that didn't do much for the bonds." Indeed, the company's NYSE-traded ADRs rose $1.06 (7.16%) to $15.86. Volume of nearly 16 million shares was more than double the usual turnover.

There was no fresh hard news out about the company, which earlier in the month reported that it lost $33.3 million in the first quarter - a considerable improvement from the yawning $115.6 million loss a year earlier Sales rose 31% to $134.3 million from $102.7 million a year earlier.

However, the rumor mill was churning away, generating buzz that the company might be an attractive acquisition for a larger pharmaceuticals maker, as well as speculation that its important Tysabri drug might soon receive federal approval to once again be prescribed for multiple sclerosis patients.

Tysabri - potentially Elan's biggest money-maker - was pulled from drugstore shelves early last year after Elan and partner Biogen Idec revealed that several patients taking it had come down with a rare, but often fatal brain condition. Two of the patients actually died. Since then, Elan, Biogen Idec and the Food and Drug Administration have been conducting a rigorous safety review to determine whether what happened was fluke occurrence, or a sign of greater problems with the drug. In recent weeks, advisory panels to the FDA and its European counterpart have both recommended Tysabri's restoration as an MS treatment.

Earnings drive activity

Elsewhere, earnings seemed to be the catalyst for movement on an otherwise largely uneventful spring Friday, which saw many New York financial market participants hit the exits early to take advantage of the simply gorgeous afternoon weather that supplanted piggy earlier rainy conditions and get a head start on the weekend.

A trader saw Remington Arms Co. Inc.'s 10½% notes due 2011 pushing up to 84.5 bid, 84.75 offered from prior levels around 83, in an otherwise "sloppy" market. The rise followed the Madison, N.C.-based firearms manufacturer's release of fourth-quarter numbers which showed its net loss decreasing to $7.3 million from $10.1 million a year earlier.

Another trader saw New York-based drugstore operator Duane Reade Inc.'s 9¾% subordinated notes due 2011 ending the week at 85.5 bid, 86.5 offered, a gain of about seven points over several sessions from the 77 bid, 79 offered area where it had begun the week. He also cited earnings, noting that while the company's numbers "were not exactly stellar, they were not as bad as some had feared."

Salton down on results

But having less-bad numbers - as opposed to better numbers - didn't prove to be much of a help to Salton. Its 12¼% notes due 2008 fell to 68 bid from 70 previously, even as its NYSE-traded shares plunged 77 cents (20.98%) to end at $2.90. Volume of 464,000 was about 2½ times the norm.

The Lake Forest, Ill.-based maker of the popular "George Foreman" brand food grills and other small appliances "had horrible numbers," a trader said in seeing their bonds struggling. It reported a fiscal first-quarter net loss of $19.1 million ($1.40 per share), an improvement from its year-earlier net loss of $22.5 million ($1.98 per share), even though net sales fell to $127.7 million in the latest period from $153.2 million a year ago.

Company executives on Salton's conference call touted the progress it is making in bringing down net debt, and expressed optimism that new products it is introducing will prove attractive to consumers (see related story elsewhere in this issue).

In the distressed-debt market, Movie Gallery's 11% notes due 2012 - which jumped 10 points on Thursday on blowout first-quarter earnings for the Dothan, Ala.-based video-rental chain operator - were seen continuing to firm Friday, moving as high as 75.5 bid before settling in around 74 bid, 75 offered, still a gain of about two points on the session.

Overall a senior high-yield syndicate official marked the market half a point lower on Friday, commenting that high yield was feeling pressure from the concurrent sell-offs in the equity and Treasury markets.

No new deals

Meanwhile the primary market session produced no new deal terms as players turned their attention to the week to come.

With no issues pricing Friday the May 8 week came to a close having seen $1.585 billion of issuance in five dollar-denominated tranches - less both in dollar amount and deal volume than the previous week's $2.178 billion in six tranches.

At Friday's close, year-to-date issuance was slightly higher than $49 billion in 142 dollar-denominated tranches, as 2006 continues to outdistance 2005. At the May 12, 2005 close the primary market had seen slightly less than $37.9 billion of issuance in 153 tranches.

3 roadshow starts

Three issuers announced roadshow starts on Friday.

Superior Energy Services will run a Monday-Tuesday roadshow for its $300 million offering of eight-year senor notes, via Bear Stearns & Co. and JP Morgan.

The Harvey, La.-based provider of specialized oilfield services and equipment will use the proceeds to repay debt and for general corporate purposes.

Also, American Greetings will begin a roadshow on Tuesday for its $200 million offering of 10-year senior notes (BB+).

UBS Investment Bank and JP Morgan are joint bookrunners for the debt refinancing deal from the Cleveland-based manufacturer of social expression products.

And MTR Gaming launched its $125 million offering of six-year senior subordinated notes (B-) on Friday.

Jefferies & Co. has the books for the construction financing, debt repayment and general corporate purposes deal from the Chester, W.Va.-based owner, operator, and developer of gaming, horse racing, and hotel properties.

The company first announced the deal on April 18, and had intended to market the new bonds shortly after, subject to a consent agreement it was seeking to obtain from the holders of its 9¾% senior notes due 2010. A source said, Friday, that the consent had dragged on longer than anticipated, delaying the eventual launch until Friday.

The week ahead

The primary market pace figures to pick up during the May 15 week. Altogether the market is anticipating $2.835 billion of dollar-denominated issuance in eight tranches from five issuers.

In addition to Superior Energy Services and American Greetings, three other prospective issuers are known to be marketing dollar-denominated deals.

Reynolds American Inc. plans to sell $1.65 billion of senior notes in tranches to mature in 2013, 2016 and 2018 (expected ratings Ba2/BB). Lehman Brothers, JP Morgan and Citigroup are joint bookrunners for the acquisition financing.

Also Education Management Corp. plans to price $760 million in two parts, a $320 million offering of eight-year senior notes (B3/CCC+) and a $440 million tranche of 10-year senior subordinated notes (Caa1/CCC+).

Credit Suisse, Goldman Sachs & Co., Merrill Lynch & Co. and Banc of America Securities are joint bookrunners for the acquisition financing.

And Unifi Inc. is marketing $225 million in a single tranche of eight-year senior secured first-lien notes (Caa1/CCC+), a debt refinancing deal being led by Lehman Brothers.

In addition to those Belvedere SA, the French spirits-maker, is in the market with a €300 million offering of seven-year senior secured floating-rate notes (expected B1).

Credit Suisse is leading the acquisition financing..

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