Market moves up on 'buying frenzy'; GMAC steady, phone bonds strong; Tyson seen firmer even as CEO quits

By Paul Deckelman and Paul A. Harris

New York, Jan. 5 - With New Year's week now behind us, the 2009 junk bond season got under way in earnest on Monday, with investors taking most names higher - in some cases, multiple points higher - on increased volume, in what one trader called "a buying frenzy." The rise was all the more notable because it came on a day when Wall Street elsewhere took a step back after last week's breathless rally, with stocks declining modestly as investors took profits and fretted about the outlook for corporate earnings.

Automotive names were mostly better, even though both General Motors Corp. and Ford Motor Co. reported another dreadful month of sharply lower sales in December. Ford's automotive financing arm, Ford Motor Credit Co., was particularly well bid-for, in active dealings. But GMAC LLC - whose bonds had been traveling in the fast lane since the day after Christmas, pushing up smartly for a week on the news that the Detroit-based consumer finance company will be allowed to become a bank and had successfully tapped the federal bailout program for $5 billion - seemed to stall out, mostly unchanged to a little lower.

Telecommunications bonds were bell-ringers, likely helped by the impending consummation - scheduled for Friday - of Verizon Communications Inc.'s acquisition of junk cellular company Alltel Corp. Other sector names seen better included SprintNextel Corp., MetroPCS Communications Inc. and Leap Wireless International Inc.

Tyson Foods Inc.'s normally little-traded bonds were seen better, albeit in relatively light trading - although the company's shares fell - after the Springdale, Ark.-based producer of chicken, beef and pork announced the abrupt exit of its president and chief executive officer, Richard L. Bond.

But while the high yield secondary market came pulsing back to life after its holiday hiatus, the junk primary remained in its vacation mode.

Market indicators mostly higher

The widely followed CDX High Yield 11 index of junk bond performance, which rose ½ point on Friday, eased on Monday by 3/8 point, a trader said, quoting it at 79 5/8 bid, 80 1/8 offered. However, the KDP High Yield Daily Index meantime jumped 113 basis points to 54.14, while its yield narrowed by 43 bps to 14.06%.

In the broader market, advancing issues kept their lead over decliners, beating them by a better than two-to-one margin. Overall market activity, reflected in dollar volumes, shot up by 53% over the pace seen in Friday's session.

"Things were definitely better again today," a trader observed. "It feels like everyone came back [from vacation] with their buying hats on."

He said that while "things are running higher, by at least a point or so," it was "very difficult" to get a real handle on where things were because volume had been so thin the preceding week or so that "it was hard to tell where things were, especially the off-the-run stuff."

That having been said, market participants were "trying to get a grip on where things are and are trying to put some money to work." He said he had seen "a bunch of different types of accounts putting money to work. People who were motivated sellers at the end of the year are not as motivated now, which I think is causing the supply vacuum, which is causing things to move up here."

However, he cautioned that "after everyone takes a deep breath and realizes how far we've come, and how fast we've come" since the junk rally began in the immediate aftermath of the Dec. 16 Federal Reserve announcement of a larger-than-expected 75 bps cut in its important federal funds rate target, combined with a pledge to do whatever is necessary to stabilize and assist the credit markets and the boarder economy, "I would expect to see some selling into all of this strength. We haven't seen it yet, but I would expect to see that, coming down the road."

He also noted that "volume obviously picked up," with the Trace bond tracking system recording over $1.2 billion of trades, "which is a nice pick-up, considering that the last two weeks we were lucky if we broke $600 million" in any given session.

Another trader said "there definitely were more buyers kicking around on things" during Monday's session.

At another desk, yet a third trader said that he had seen "a little bit of a buying frenzy. Accounts, dealers - everybody's loading up."

He said that when bonds are trading at or near par, "everything is skewed - there's a lot bigger downside risk. But when the average dollar price is anywhere from 40 to 50, if you do some homework, you have a pretty good shot at getting a positive return for the year. So I think guys are jumping in here and trying to pick what they believe may be the bottom.

"We definitely had some bonds gapping up - reminiscent of their downside gapping over the last two to three months."

He further opined that with the calendar page having now been turned and the books closed on one of the most truly pathetic years in high yield's history, "I think there's a whole new attitude - people are starting with a clean slate," with valuations "so low compared to a year ago."

He warned that getting good returns in the current economic environment, with many investors worried about corporate profits and mounting defaults, is by no means a slam dunk: "it's not like you can just pick any credit out of a hat." However, he added "if you do some homework and look at cash-flow projections, there's money to be made in '09."

Ford Credit sizzles, GMAC fizzles

The news that Ford's December U.S. sales skidded 32% from a year ago, and its overall 2008 sales plunged 21% year-over year - levels bad enough to keep Dearborn, Mich.-based Ford mired in third place, saleswise, behind perennial industry leader GM and upstart Toyota, which had grabbed Ford's longtime Number-Two ranking away in 2007 -- seemed to have little or no impact on Ford Credit's bonds, with a trader seeing the finance arm's 7 3/8% notes that will come due in October at 89 bid in round-lot trading, well up from 86.25 on Friday, with over $35 million traded, making it easily one of the most actively traded junk issues on the day.

"They're short [dated], and people still have confidence that [Ford] will be around then. It's certainly a crapshoot."

A market source at another shop quoted those bonds finishing the day at 90, up more than 4 points on the session, while Ford Credit's 9 7/8% notes due 2011 moved up by as much as 7 points on the day, to 79 bid, also in busy trading.

While Ford Credit's bonds were setting such a scorching pace, rival auto finance unit GMAC's bonds - which had a big run-up starting the first day back from the Christmas holiday and continuing through this past Friday - seemed to be pretty much out of gas.

A trader saw GMAC's paper "a little off its highs of Friday," but said that its shorter-dated paper, particularly that coming due this year, was quite active. He saw the floating-rate notes coming due on May 15 at 95 bid, 97 offered, and said its 5 5/8% notes, also due May 15 were around 97 bid, 98 offered.

The latter issue was one of the most actively traded bonds of the day; a market source called them up 2 points at 96.5, while another trader had them at 97.25 bid, off ¼ point from Friday's level, on $27 million of bonds traded.

He also saw the 7¾% notes due 2010 off ¾ point at 90.25, on $13 million traded.

Another trader saw GMAC's 8 3/8% bonds due 2031, "up nicely, up a few more points today" at 61 bid, 63 offered.

At another desk, a trader said there was a differentiation between the older unsecured bonds which were not tendered in the company's just-completed exchange offer and new secured debt which it issued to holders who did tender in exchange for their old bonds. The new bonds were trading at 63 bid, 64 offered; since they were newly issued, there was no previous level against which to compare them. In contrast, he said, the old, untendered 8s were at 55 bid, 57 offered "about where they were" last week.

A trader said that he "didn't see a lot" in the GMAC bonds, although he did note that "a lot of the '09s traded." Those bonds had been "banging around" the mid-97 area last week, and were pretty much unchanged on Monday. "Maybe it was up a touch, but it was so spotty, that it was hard to tell at the end of last week where things really went out."

Carmakers shrug off sales slide

Among the bonds of the two finance arms' respective corporate parents, a trader saw General Motors' 8 3/8% benchmark bonds due 2033 up a point at 19 bid, 20 offered and saw Ford's 7.45% bonds due 2031 also up a point at 28 bid, 30 offered, despite the poor December sales numbers reported by both carmakers. GM's December sales slid 31% from year-earlier levels, while the 2.9 million vehicles it sold last year was the lowest number in 49 years.

Another trader said the GM benchmarks were "better, though not by a lot," at 20 bid, 22 offered, while the Ford long bonds were "about where they were last week" at 29 bid, 31 offered.

A trader said Ford's paper "seemed to try to do a little better this morning, but gave a little back" after the sales numbers were released. He saw its 7 3/8% notes that are slated to come due on Oct. 28 at one point trading as high as 91.25; the bonds "have since given some of that back," he said, pegging them at 89.5 bid, 90.5 offered, still up from an 88-90 context at the end of last week.

"So it was definitely a touch better" on the day. "It was better [than the eventual closing level] ahead of the numbers, and kind of gave a little back."

At another desk, a trader saw the most active GM bond as the 7.20% notes due 2011, with $17 million changing hands; he called them unchanged at 26 bid, and said the Ford '31s had risen to 29.5 bid from prior levels at 28.

Former Ford unit Hertz Corp.'s bonds were "a big mover today," a trader said, with its 10½% notes due 2016 up to 50.25 bid from Friday's 46 level on $9 million traded, while its 8 7/8% notes due 2014 traded at 67.5 bid, up from 62.

Auto parts better

Among the automotive suppliers, a trader saw Lear Corp.'s 8½% notes due 2013 at 40 bid, 41 offered, which he said was "8 or 9 points" up from where those bonds had closed out the old year last week.

He saw Visteon Corp.'s 8¼% notes due 2010 up 5 points on the session at 35 bid, 36 offered, while American Axle Manufacturing and Holdings Inc.'s 7 7/8% notes due 2017 gained 4 points to end at 35.5 bid, 36.5 offered. ArvinMeritor Inc.'s 8¾% notes due 2012 were also up 4 points at 57.5 bid, 58.5 offered.

Alltel paces telecoms

Among the telecom issues, Alltel's 7% notes due 2012 moved up to 101 bid, 102 offered, which a trader called a 3-point gain on the session. Its 7 7/8% bonds due 2032 settled in at par bid, up 5 points on the day.

He noted that Verizon, currently the second-largest wireless carrier in the United States, is expected to complete its acquisition of the Little Rock, Ark.-based Number-Five operator Alltel on Friday, which will create a combined company bigger than the currently industry leader, AT&T Corp., and far larger that rivals Sprint Nextel and T-Mobile.

"With the closing coming up, the deal risk evaporates."

In that same sector, a trader saw Sprint Nextel's 8 3/8% notes due 2012 move up to 85 bid from prior levels at 83, with about $14 million of the bonds changing hands, while the Overland Park, Kan.-based Number-Three U.S. wireless provider's 8¾% bonds due 2032 rose to 72 bid from 69 on Friday, on $12 million of turnover.

Other cellular issues doing better, he said, were Metro PCS' 9¼% notes due 2014, which jumped to 94 bid from prior levels at 90.5 bid, while Leap Wireless unit Cricket Communications Inc.'s 9 3/8% notes due 2014 were about ½ point higher at 92 bid. Turnover in Dallas-based Metro's notes amounted to $14 million, while San Diego-based Cricket's saw $10 million traded.

Another trader saw the Metro PCS bonds at 94 bid, 95 offered, up 2½ points, while Cricket's paper was 2 points better at 92 bid, 93 offered.

In the non-cellular part of the telecom world, a trader saw Level 3 Communications Inc.'s 12¼% notes due 2013 up 2 points, at 64 bid, 65 offered, in line with the general surge in telecommunications bonds.

He said the 9% notes due 2031 of the old Citizens Communications Corp. - now known as Frontier Communications Corp. - were 2 points better at 66 bid, 67 offered.

Tyson unfazed by CEO exit

The news that Tyson Foods CEO Dick Bond will leave the giant meat and poultry producer "effective immediately" pushed the company's New York Stock Exchange-traded shares down 56 cents, or 5.99%, to $8.79, on nearly twice the usual 7.5 million share volume.

However, bond investors took the news in stride, with its bonds actually seen higher, although trading in the normally rarely seen issues was light. A trader saw Tyson's 6.60% notes due 2016 at 74 bid, 76 offered, up from levels around 72 bid, 75 offered earlier in the day, but said he had "no numbers going backward to compare" those levels with. He saw the credit-default swap spread protection for bondholders 10 bps wider.

"There were an awful lot of CDS quotes - but no cash levels," he said.

Another saw those bonds as high as 78.5 bid, well up from prior round-lot levels at 73.5, but said that the bonds had "not traded in a while" - all the way back to mid-December.

A market source saw the 16s up about 5½ points at 78 bid on several large-block transactions, while the company's 8¼% notes due 2011 gained more than 3 points - though on light trading - to above the 93 level.

In announcing the change, Tyson quoted Bond as saying that "I have decided it is in both my best interest personally, and the best interest of the company for me to move on and pursue other interests," but did not further elaborate on the circumstances of his departure, leading some in the media to speculate that given the company's recent underperformance in both its earnings and its stock price, Bond's exit was not entirely voluntary.

Tyson said that Bond will be replaced on an interim basis by former chairman and CEO Leland Tollett until a permanent replacement is found.

Freeport bonds falter

With not much going on on the downside, a trader saw Freeport McMoRan Copper & Gold Inc.'s 8¼% notes due 2015 down a point from last week's year-end levels, at 85.5 bid, with $18 million of the issue traded, but he called that movement in the Phoenix-based metals mining company's bonds "an aberration of our market."

Quality names strong

Higher-quality bonds have traded up significantly during the past couple of weeks, a syndicate source said.

Recently priced bonds including El Paso Corp.'s 12% five-year senior notes (Ba3/BB-) and Kansas City Southern Railway Co.'s 13% five-year senior notes (B2/BB-), both of which were priced in the high 80s during mid-December, now are trading above par, the source added.

Meanwhile Community Health Systems Inc.'s 8 7/8% senior notes due July 2015, a whopping $3 billion-sized issue, have traded up 17 points since mid-December, the official said, spotting the notes at 94 bid on Monday.

"We've heard that there was some short-covering that might have been a factor," said the source, adding that the thin volume typical of year-end obviously was a factor.

"Still, it's a benchmark-sized bond," the official pointed out.

"It's an example of one of the higher quality issuers in a defensive sector trading up during the past couple of weeks."

Primary quiet

Meanwhile the primary market remained quiet on the first Monday of 2009, market sources said.

There are no deals in the market and none on the active forward calendar.

Asked whether there stand to be any announcements on the new deal front before the end of the first full week in January, sources were non-committal.

Nor did the Monday session produce any news on the restructuring front.

One syndicate official was still parsing the results of the GMAC LLC debt restructuring, which fell well short of the goal announced at the outset: to raise $30 billion of tier one capital in order to garner bank holding company status from the FDIC.

As the year played out the GMAC exchange deal generated only $21.2 billion, however - whereupon the U.S. Department of Treasury stepped up with $5 billion in a perpetual preferred shares deal, and the FDIC declared its satisfaction with the amount of capital that GMAC managed to free up in the exchange - even though it was well short of the target announced on Nov. 21 - and granted bank holding company status anyway.

Hence passing judgment on the GMAC exchange is no easy feat since "the government moved the goal post," the syndicate official remarked on Monday.

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