Metaldyne bonds back off as buyout becomes official; holiday stills other activity

By Paul Deckelman and Paul A. Harris

New York, Sept. 1 - Metaldyne Corp.'s bonds - which jumped Thursday on a news report that the Plymouth, Mich.-based automotive parts company would be bought by a Japanese parts producer - fell back from those peak levels Friday as the company officially announced that such a transaction would take place - and would include a tender offer for the company's bonds at the lower levels at which they traded in "the recent preannouncement period."

The transaction is valued at about $1.2 billion, including the refinancing or repurchase of Metaldyne's debt, which totaled nearly $900 million as of the end of its most recent fiscal quarter on July 2.

Other automotive parts makers continued to draw some sector strength from Metaldyne, with a number of them, such as Visteon Corp. and Dura Automotive Systems Inc., seen up about a point or more.

Outside of that, however, not much went on in an abbreviated pre-holiday session that officially wrapped up at 2 p.m. ET but which was over long before that for all intents and purposes, traders said.

Ford Motor Co.'s bonds, and those of its Ford Motor Credit Co. financing unit were a bit easier, as the struggling Number-Two domestic carmaker reported yet another month of sales decline in August.

Traders meantime reported little or no activity in the bonds of non-automotive names, for instance Unisys Corp., whose bonds were little traded even after Standard & Poor's cut the Blue Bell, Pa.-based high-tech solutions company's debt ratings by a notch.

And the primary market remained shuttered, although it is expected to pick up once trading resumes on Tuesday following the Labor Day holiday break.

Metaldyne deal official

As was the case on Thursday, the big mover of the day was Metaldyne - but while its bonds jumped on what at that time were still-unofficial news reports that a deal to sell the company to Japan-based Asahi Tec Corp. was coming, they retreated Friday after the official announcement was made, in a classic case of "buy the rumor, sell the news."

A trader said that Metaldyne "got easier," quoting the company's recently volatile 11% subordinated notes due 2012 as having dropped back to levels as low as 87 bid, 89 offered from a Thursday close at 93 bid, 95 offered, although those notes were "bouncing around," he said, moving back up from the lows to end at around 89 bid, 91 offered.

He meantime saw the company's considerably more stable 10% senior notes due 2013 ease only slightly, to 98 bid, 99 offered from par bid, 101 offered on Thursday.

He suspected that at least some of the pullback was attributable to profit-taking off the strong gains notched on Thursday, when the 11s zoomed up into the lower 90s from prior levels in the upper 70s, at least a 15 point surge in response to a news service story touting the Asahi Tec deal, while the 10s firmed to around par from the mid-90s.

He also speculated that "it could be that [bond investors] are not sure of the deal getting done."

Another trader who saw the Metaldyne bonds back off a little, said that they ended "back up" from their session lows, with the 11s closing at 90.5 bid, 91.5 offered, down only slightly from the 91.5 bid, 93.5 offered level at which the bonds had been quoted at his shop late Thursday, and up from their Friday intraday lows at 87 bid, 88 offered. He saw the 10s end at 99 bid, par offered, down about half a point on the day.

He cited "a blurb that they're going to need to tender for the bonds where the bonds were previously."

In its announcement of the deal, the company noted that among other conditions, the closing of the merger would be subject to the completion of a tender offer for a minimum of $225 million total principal amount of its 11% notes and its 10% subordinated notes due 2014 (the tender offer, as outlined by the company announcement, would not include the $150 million of 10% senior notes due 2013). At the end of the second quarter, Metaldyne had $250 million principal amount of the 11s outstanding, as well as $31.7 million of the 10% 2014 notes outstanding, with all of the latter currently in the hands of DaimlerChrysler Corp. The offer would take place "at a tender price reflecting the price of the 11% notes during the recent preannouncement period," when the bonds were mostly in an upper-70s context.

Along with the tender offer, Metaldyne will seek a waiver of the notes' change-of-control provisions.

Metaldyne said that any notes that remain outstanding after completion of the tender and consents will not benefit from any new guarantees or other credit support from Asahi Tec or any of its current subsidiaries.

"People feel the tender could be in the upper 70s," the second trader said. "But I would think that no one would really believe in that anymore, and that this would constitute a legitimate change of control, and they'll need to pay a better price, so the bonds have bounced back up."

He said that the bonds were "pretty active" amid the mostly quiet pre-holiday market Friday, with "mostly institutional business."

Other financing and debt-related conditions for the completion of the acquisition will include the receipt of consents and waivers from its bondholders, as well as the refinancing of Metaldyne's senior bank debt. As of the end of the quarter, the company had total senior credit facility debt of $409.72 million, consisting of $374.72 million of terms loans and $35 million drawn under its revolving credit line. It had an additional $19.4 million due under a separate senior secured credit facility due 2009, and $7.9 million of capital lease obligations and other miscellaneous debt.

Metaldyne said that further, Asahi Tec may elect not to close if Metaldyne's rating for senior term debt is lowered below certain levels and its interest cost for that debt exceeds certain levels.

Auto parts steer higher

The Metaldyne deal was seen helping the bonds of other names in the beleaguered auto parts sector. A trader saw Visteon's 7% notes due 2014 up a point at 91.5 bid, 92.5 offered, and saw Dura's 8 7/8% senior notes due 2012 also a point better at 74.5 bid, 75.5 offered, although the Rochester Hills, Mich.-based parts maker's hard-hit 9% subordinated notes due 2009 were unchanged at 16.5 bid, 17.5 offered.

Another trader also saw the Dura seniors up a point, at that same 74.5 bid, 75.5 offered level, but saw the 9s also up ½ point to a point at 17 bid, 18 offered.

He saw the bonds of bankrupt Troy, Mich.-based parts maker Delphi Corp. up ½ point at 90 bid, 91 offered on its 6½% notes due 2009.

A trader saw Hayes Lemmerz International Inc.'s 10½% notes due 2010 at 77.5 bid, up from 76.625 previously, while another saw the bonds move up "maybe a point" on the day from unchanged morning levels around 77 bid, 79 offered. He saw the high trade of the day around 79, although that was "a small piece," with most of the several trades that did take place in the name in a context of 76.75-78.75.

At the same time, the Northville, Mich.-based automotive wheel-maker's Nasdaq Global Market-traded shares soared 37 cents (21.76%) to close at $2.07. Volume of 597,000 shares was nearly double the usual turnover.

"All of these guys who were kind of on the brink - Hayes, Dura - have certainly moved up," the second trader said. "It was all on sympathy, that a weak sister like Metaldyne has attracted a suitor and so we're getting to 'who's next?' - and Hayes, and Dura and Cooper [Standard], all of those kind of credits are candidates. I'm not sure they're going to be acquired, but that's why Hayes would be up."

Hayes Lemmerz was one of eight auto-parts suppliers recently put on watch for a possible ratings downgrade by Moody's Investors Service following big customer Ford's announcement of coming major output cuts

Ford off, GM up on sales data

Ford's bonds, meantime, were seen off slightly after the carmaker reported an 11.6% fall in total vehicle sales in August from year-earlier levels. Sales of Ford's most profitable vehicles, its pickup trucks and sport-utility vehicles, slid 20.8% year-over year - sales of its popular F-series truck were off 15% - although car sales rose 8.5% on the popularity of Ford's mid-size Ford Fusion, Mercury Milan and Lincoln Zephyr sedans.

Ford - which suffered the embarrassment of being passed sales-wise by Japanese rival Toyota in July, surrendering second-place in the U.S. auto market to an overseas carmaker for the first time ever - regained that second spot in August.

A trader saw Ford's 7.45% notes due 2031 at 78.25 bid, 78.75 offered, and its Ford Motor Credit 7% notes due 2013 at 92.75 bid, 93.25 offered, each off 3/8 on the day.

Meantime, Ford arch-rival General Motors Corp.'s benchmark 8 3/8% notes due 2033 were ¼ point better at 83.75 bid, 84.75 offered, while its General Motors Acceptance Corp. financing arm's 8% notes due 2031 were down ¼ point. Industry leader GM reported a 3.9% rise in total vehicle sales in August from year-ago levels, with car sales up 3.9% and truck and SUV sales up 4%.

Unisys steady

Outside of the automotive area, traders said that very little was going on. Even when there was news - as was the case with Unisys' ratings downgrade to B+ from BB- from S&P - traders saw little trading activity or bond price movement.

Unisys' 8½% notes due 2015 were steady at around 92 bid, while its 7 7/8% notes due 2008 hung in at around par.

Jean Coutu trades, little moved

A trader said that about the only name he saw doing anything, apart from the auto credits, was Jean Coutu Group Inc., whose 8½% subordinated notes due 2014 traded into a 95.25 bid and finished at that level. The bonds had firmed to levels around 95.5 on Thursday, up 1½ points.

"We had buyers and sellers [Friday] but we couldn't get anything going," he said.

The Canadian pharmacy operator's bonds have recently gyrated around in the wake of the announcement of the company's plan to sell its Eckerd and Brooks drugstores to Rite Aid Corp. in a $3.4 billion deal. While that news initially caused the 81/2s to shoot up 4 or 5 points to par bid levels, they fell back to lows around 92 after the companies said that the $850 million of bonds would be assumed by Rite Aid rather than bought back by Jean Coutu as holders had expected. The bonds have since made their way back up to the mid-90s on speculation that large bondholders might challenge the company and either force it to buy the bonds back or offer them a consent fee to waive their objections to the Rite Aid deal.

Hospital names higher

Elsewhere, the trader saw Tenet Healthcare Corp. bonds firmer, with the Dallas-based hospital operator's 9¼% notes due 2015 at 94.5 bid and its 9 7/8% notes due 2014 at 97.5 bid, 98 offered, both up ½ point on the day, though on no fresh news.

In that same sector, a source saw the soon-to-go-private HCA Corp.'s 5¾% notes due 2014 quoted at 78.5 bid, up ½ point on the session, while Iasis Healthcare LLC's 8¾% notes due 2014 were ¼ point better around 96.

Overall, "it was very quiet," a trader said. "The market tried to open a little bit this [Friday] morning, then the unemployment numbers came in" - the jobless rate slid to 4.7% in August, the Labor Department said - "and it was sort of as expected, and the market just went to sleep. A lot of people just didn't come in."

A market source said that the broad high-yield market remained basically unchanged in extremely light activity during Friday's abbreviated pre-Labor Day session.

Meanwhile the primary market saw no activity.

Zero on the week

With the week seeing no new deals pricing whatsoever, year-to-date issuance to Sept. 1 remains at just over $85 billion, according to Prospect News data.

Hence in terms of dollar issuance, the present year's primary market leads that of 2005 on a year-over-year basis by slightly more than 21%; issuance for 2005 to the Sept. 1 close was just slightly less than $67 billion.

In terms of deal volume, however, 2006, with 246 dollar-denominated tranches, lags 2005's 263 tranches at the Sept. 1 close by 6.5%.

The run to 2007

As the lights go down on the new issue market ahead of the three-day break, only one deal has been announced as being in the market.

Turning Stone Resort Casino, a Syracuse, N.Y., gaming and entertainment casino and hotel operation run by the Oneida Indian Nation, will hold an investor conference on Tuesday to present its $160 million offering of eight-year senior notes (Ba3/B+), which is expected to price late in the post-Labor Day week.

Banc of America Securities is the bookrunner for the debt refinancing, distribution funding and general corporate purposes deal.

What lies beyond that deal is something of a gray area.

During the run-up to Labor Day sell-side sources, pressed to identify deals likely to launch during the post-holiday week, professed uncertainty.

During the last two weeks of August something of a consensus developed that at least three sizable deals are likely September business.

Michaels's Stores Inc.'s approximately $1.4 billion of bonds, expected to be split equally between senior notes and senior subordinated notes, was mentioned during several conversations with sell-side sources. Deutsche Bank Securities, JP Morgan and Banc of America Securities are leading the LBO financing.

There seemed to be even more certainty that the market would see the BPC Holding Corp. (Berry Plastics) $750 million offering of senior secured second-lien notes launch in September. Credit Suisse, Deutsche Bank and Citigroup are joint bookrunners for the acquisition financing.

Late in the pre-Labor Day week at least two sources said it would not be surprising were Berry Plastics to emerge as the first big deal to surface after the holiday break.

Georgia Gulf Corp.'s $750 million offering, comprised of a $500 million tranche of senior notes and a $250 million tranche of senior subordinated notes, is also roundly expected to be September business. Merrill Lynch is leading the acquisition financing.

A couple of sources also mentioned Energy Partners Ltd.'s $730 million senior notes acquisition financing as likely to come to market September.

And PT Polyfin Canggih's $75 million five-year notes with warrants deal, via Jefferies, is also considered to be possible for September.

Beyond those five deals looms a massive "shadow calendar" of deals that market watchers expect to price before the end of the year.

Expecting $30 billion

One high yield syndicate source on Friday forecast that the market would see approximately $30 billion of issuance between Tuesday and the end of the year. That amount would put the year's issuance totals well in excess of $100 billion.

During the conversation with this official, Prospect News inquired as to the liquidity of the asset class, noting that the most recent report from AMG Data Services shows a $152.9 million outflow from the high yield mutual funds for the week to Aug. 30, extending the red ink among funds that report to AMG on a weekly basis to negative $3.16 billion year-to-date.

The source said that there should be plenty of cash to clear the $30 billion of issuance forecast for the remainder of the year.

It won't be a "come-one, come-all" market, the official added.

However prospective issuers with good credit should be able to raise money in the junk bond market through the rest of the year.

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