Freeport prices historic huge deal, new bonds gain; new TRW mega-deal struggles in aftermarket

By Paul Deckelman and Paul A. Harris

New York, March 14 - Freeport McMoRan Copper & Gold Inc. mined the junk bond market Wednesday for a record $6 billion of new capital, bringing a well-received three-part issue of fixed- and floating-rate bonds. That new debt was seen by secondary market traders to have firmed smartly when it was freed for aftermarket dealings.

But such was not the case for the day's other mega-deal, TRW Automotive Holdings Corp.'s three-part, $1.46 billion equivalent issue of dollar- and euro-denominated notes. When the issue was freed for aftermarket trading, it moved lower.

In the secondary market, apart from the warm reception accorded the Freeport McMoRan notes and the decidedly chilly response that TRW's new paper evoked, General Motors Corp. debt and the General Motors Acceptance Corp. bonds issued by GM's still 49%-owned affiliate, GMAC LLC, were seen lower, after the Detroit giant reported a fourth-quarter profit - its first in two years - but missed analysts' expectations, chiefly because of problems in GMAC's home mortgage lending business.

The continued problems of the subprime lending industry - including GMAC, a fairly large subprime player - also continued to have an impact on homebuilders such as K. Hovnanian Enterprises Inc. and KB Homes, since the subprime sector is the shakiest part of the mortgage industry, and industry problems are likely to show up there first, making it a distant early warning system for the whole of the loan industry, and the homebuilders who rely on the continued easy availability of credit.

A sell-side source said the broad market was 3/8 point lower on Wednesday, and blamed the drop in part on the burst of new issuance that hit the primary market during the session.

Speaking of the new issue arena, two issuers brought a combined total of five dollar-denominated tranches, altogether raising slightly less than $7.1 billion of proceeds.

One of those issuers, Freeport McMoRan Copper & Gold Inc., broke the record for most amount of issuance from a single issuer in a single day, placing an even $6 billion in three par-pricing tranches.

That tops the Firestone Acquisition Corp. (Freescale Semiconductor Inc.) $5.95 billion multi-tranche deal which priced late last year.

And Wednesday's total amount of dollar-denominated issuance, approximately $7.1 billion, rendered it the biggest day in the primary market since Nov. 16, 2006, which was the day that Freescale completed its transaction. That session, incidentally, saw four issuers price a combined total of nine tranches that generated $8 billion of proceeds.

A new Goliath

Freeport McMoRan placed record-breaking issuance of $6 billion of high yield senior notes (B2/B+) on Wednesday.

The Phoenix-based mining company priced a $3.50 billion tranche of 10-year notes at par to yield 8 3/8%. The original price talk was 8 1/8% to 8¼%. The 10-year notes were launched Wednesday morning at 8 3/8%.

The company also priced a $1.5 billion tranche of eight-year fixed-rate notes at par to yield 8¼%. Original price talk was for a yield in the 8% area. The eight-year floating-rate notes were launched Wednesday at 8¼%.

Finally, in a tranche that was added after the megadeal was in the market, Freeport McMoRan priced $1 billion of eight-year floating-rate notes at par to yield six-month Libor plus 325 basis points. Original price talk was Libor plus 300 to 350 basis points. The floating-rate notes were launched Wednesday morning at six-month Libor plus 325 basis points.

JP Morgan and Merill Lynch & Co. were joint bookrunners for the acquisition deal.

Market observers told Prospect News that the transaction appeared to have gone well.

A sell-side official, noting that the bonds had broken for trading late in the session, said that all three tranches were trading at 101.50 bid at the close.

TRW raises $1.46 billion

Wednesday other issuer was TRW Automotive which priced $1.46 billion equivalent of senior notes (Ba3/BB/BB-) in a quickly marketed, restructured three-part transaction.

The Livonia, Mich., parts supplier to the automotive industry priced a $500 million tranche of 7% eight-year notes at 98.654 to yield 7¼%. The tranche was downsized from $675 million. The yield came on top of price talk that had been increased from 6 7/8% area.

Meanwhile TRW talked an upsized €275 million tranche of 6 3/8% eight-year notes at 98.625 to yield 6 5/8%. The yield came at the tight end of the 6¾% area price talk, which had been increased from the 6 3/8% area.

The euro-denominated tranche, which was upsized from €250 million, was managed by Lehman Brothers International (Europe). In addion to Lehman Brothers the joint were Banc of America Securities Ltd., Deutsche Bank AG, London branch, Goldman Sachs International and Merrill Lynch International.

In addition TRW priced an upsized $600 million tranche of 7¼% 10-year notes at 98.27 to yield 7½%. The 10-year notes tranche was upsized from $500 million. It priced on top of the 7½% area price talk, which had been increased from the 7 1/8% area.

Both dollar-denominated tranches were managed by Lehman Brothers. The other joint bookrunners were Banc of America Securities LLC, Deutsche Bank Securities, Goldman, Sachs & Co. and Merrill Lynch & Co.

Proceeds will be used to refinance debt.

Sources said that the TRW deal had faced investor pushback.

Not only was price talk too rich, a hedge fund source told Prospect News, but the buy-side had issues regarding the covenants.

A sell-sider not in the deal said that the company initially was attempting to sell the bonds with investment-grade covenants, but eventually capitulated and did the deal with high-yield covenants.

Southern Natural Gas split-rated deal

In addition to the two junk deals that priced on Wednesday, El Paso Corp. subsidiary Southern Natural Gas priced a split-rated $500 million issue of 5.9% 10-year senior unsecured notes (Baa3/B+/BBB-) at Treasuries plus 140 basis points.

Banc of America Securities, Citigroup and Credit Suisse led the crossover issue of notes which priced at 99.834 to yield 5.922%.

Proceeds will be used to refinance debt.

General Cable talks $325 million

Finally on Wednesday General Cable Corp. set price talk for its $325 million two-part offering of senior notes (B1/B+) on Wednesday.

The Highland Heights, Ky., wire, fiber optic and cable products company talked a tranche of 10-year fixed-rate notes at 7¼% to 7½%, and its eight-year floating-rate notes at Libor plus 250 basis points area.

The Goldman Sachs-led debt refinancing and genearl corporate purposes deal is expected to price on Thursday.

New Freeport is hot, TRW is not

When the new Freeport McMoRan bonds were freed for secondary dealings, traders saw the new bonds move right up on the break and stay there.

One quoted the new 8¼% notes due 2015 at 101.25 bid, 101.75 offered, the new 8 3/8% notes due 2017 at 101.375 bid, 101.875 offered, and the new eight-year floaters at 100.75 bid, 101.5 offered, all up from their respective issue prices at par earlier in the session.

While the new Freeport McMoRan bonds were sizzling, the just-priced TRW notes were fizzling, traders said.

One of them quoted the dollar-denominated 7% notes due 2014 at 98 bid, 98.5 offered, down from their 98.654 issue price earlier in the session. The new 7¼% notes due 2017 fared no better, easing to 97.375 bid, 98.25 offered, down from their 98.270 issue price.

The new 6 3/8% euro-denominated seven-year bonds were not seen in the aftermarket, several traders said.

GM, GMAC lower on results

Back among the established issues, clearly the busiest bonds of the day, according to the Nasdaq Trace bond-tracking system, were those of General Motors and its financing arm, GMAC, although GM still owns slightly less than half of the latter company following last year's sale of 51% of it to an investor consortium headed by Cerberus Capital Management.

Even so, the two names moved downward in tandem after GM posted results that were below expectations, chiefly due to problems with its financing unit's residential mortgage business.

Even though GMAC is primarily engaged in financing consumer automobile purchases, a sizable chunk of its business comes from mortgage lending through its Residential Capital Corp. subsidiary - and ResCap has a substantial portfolio of subprime loans made to less credit-worthy borrowers. Along with a number of other subprime lenders - particularly the beleaguered New Century Corp., as well as high-yield issuer Fremont General Corp. - GMAC has seen an increase in delinquent payments and even foreclosures, as the economically challenged borrowers have difficulty meeting their mortgage obligations. That in turn has produced a meltdown in the subprime sector, which has affected the shares and bonds of lenders such as GMAC in recent days.

In Wednesday's junk market dealings, a trader said that "a lot of [GM] paper traded,", with the Number-One carmaker's 8 3/8% notes due 2033 seen down 2 points at 89 bid, 90 offered, while GMAC's 8% notes due 2031 were about unchanged at 109 bid, 110 offered.

Another trader saw the GM benchmarks down 1½ points at 89.5 bid, 90 offered, while the GMAC issue was ½ point lower at 109.25 bid, 109.75 offered.

But a market source called the 8s down 1½ points at 108.5, and saw GMAC's 6 7/8% notes due 2011 two points lower at 98.5 bid, while its 2012 6 7/8% notes were down a point at 100.5. GM's own 8 3/8s were off 1½ points at 90.5, while its 7 1/8% notes due 2013 were off ¾ point at 94.25.

The GM bonds and GMAC's fell even as the carmaker posted a fourth-quarter profit of $950 million ($1.68 per share) - its first black ink in two years, and a sharp rebound from the $6.6 billion ($11.63 per share) year-earlier loss. GM cited the impact of cost cuts, higher automotive revenues and a gain on the sale of the controlling stake in GMAC to the Cerberus-led group.

However, GM reported an operating profit, excluding some special items, of $180 million (32 cents per share) - well below the $1.22 per share Wall Street had been expecting, chiefly due to losses that GMAC racked up on its mortgage business, totaling $128 million in the quarter.

But while GM was down, rival Ford Motor Co.'s bonds - which had been falling over the last few sessions, with junk marketeers unimpressed by the news that it will reap nearly $1 billion from the sale of its non-core Aston-Martin sports car operations in the U.K. - were seen to have steadied, finally. A trader saw Ford's 7.45% notes due 2031 unchanged at 77.5 bid, 78.5 offered, while at another desk, the bonds were actually quoted up 1¾ points at 79.5 bid.

However, Ford Motor Credit Co.'s 7% notes due 2013 were seen down ¾ point at 94.5. The Ford auto finance unit has lately struggled, even though it does not have the same exposure to the subprime problem that its GM counterpart does.

Subprime continues to take toll

The continued problems of the subprime sector continued to take their toll on the bonds of high-yield issuers seen touched by those problems, particularly homebuilders, whose already fragile sales could be hurt further by any mortgage industry problems.

Among them was KB Home, whose 8 5/8% notes due 2008 were seen down ¾ point at 104.25 bid, although its actively traded 8¼% notes due 2015 were actually up slightly, at just below 93 bid.

Hovnanian's 8 5/8% notes due 2017 gyrated around at lower levels, ending down ½ point at 101.5 bid - well below their day's high at 104.

Lender Fremont General's 7 7/8% notes due 2009 were seen holding steady around 89.5, although they remain well below the par levels they held as recently as mid-February, before the sector melt-down began.

Polypore up on IPO news

Elsewhere, Polypore International Inc.'s zero-coupon/10½% discount notes due 2012 jumped to 92.5 bid, 93 offered from prior levels at 87.5 bid, 88 offered on the news that the Charlotte, N.C.-based polymer-based membranes maker plans an initial public offering to sell up to $362.3 million in common stock, according to a filing with the Securities and Exchange Commission. It will use the anticipated proceeds to take out the discount notes.

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