Delphi bottoms out after Chapter 11, other autos down also; Refco roiled after CEO ouster

By Paul Deckelman and Paul A. Harris

New York, Oct. 11 - Delphi Corp.'s bonds were lower Tuesday, as junk marketeers returning after their long (3½ day) Columbus Day weekend discovered - to the surprise of exactly nobody - that the Troy, Mich.-based automotive components manufacturer had filed for Chapter 11 protection from its bondholders and other creditors during the holiday hiatus. Other automotive names, notably including Delphi's erstwhile parent, General Motors Corp., went along for the downside ride.

But the big loser was Refco Finance Holdings, whose bonds were soundly beaten down from their previous above-par levels on news that the New York-based financial services company had put its chief executive officer and another top executive on involuntary leaves of absence and had chosen others to replace them, after discovering their alleged involvement in a $430 million related-party transaction that had not been previously disclosed.

Primary market activity was restrained, with only the news that Roundy's Supermarkets Inc. was beginning a roadshow Wednesday for its planned two-part offering.

However, news about an older bond deal - Exide Technologies Inc.'s March offering - was causing some excitement, with the Lawrenceville, N.J.-based automotive battery maker denying a bondholder's allegations that it and underwriter Deutsche Bank Securities covered up the company's financial condition to get the bond deal done.

Overall the high-yield market took a beating on Tuesday, as trading got underway in the wake of the three-day Columbus Day weekend.

One source marked it down half a point, and added that trading had been sloppy throughout the session.

Another source, an official on a high-yield syndicate desk speaking shortly after, remarked that high yield was off "every bit of" half a point, and added that it seemed as though "everything" was down during the session.

Yet another syndicate official simply commented that at present the junk market just does not feel good.

Delphi's bonds were all trading around the same mid-50s context, and all were trading flat, or without their accrued interest, traders said.

The drop was most obvious in the company's benchmark 6.55% notes due 2006, which on Friday had been quoted finishing up anywhere from 60 to 64.5 bid, with most participants quoting those bonds around 60 bid, 62 offered.

In Tuesday's dealings, one trader saw the bonds go as low as 55 bid and as high as 57, before finally settling in around 56.5 bid, 57.5 offered, with "a lot of trading" going on in the issue. He saw all of the company's other bonds - its 6½% notes due 2009, 6½% notes due 2013, and 7 1/8% notes due 2029 - all trading in that same area, as the issues have finally converged.

Another market source agreed with the first trader's assessment of the activity level, noting that at least $70 million of the 7 1/8s had changed hands, counting only those trades for $1 million or more face amount of the bonds, and about $68 million of the 6.55s.

The latter bonds, he said, were on "a little bit of a wild ride," opening 58.25 Tuesday morning, then plunging as low as 54.5, before coming off that low to end around 56, around the same level at which the 7 1/8% notes traded after losing a point off Friday's levels.

Yet another trader saw the Delphis "settle in, everything on top of each other," and trading flat at 57 bid, 58 offered.

Other auto names lower

Traders saw other automotive names lower on sector sympathy, with the biggest name out there - GM - particularly lower, understandable since the Detroit auto giant becomes liable for some of Delphi's contractual labor expenses following the Chapter 11 filing.

GM's flagship 8 3/8% notes due 2033 were big movers, with at least $65 million face amount of the bonds changing hands, a market observer said. He quoted the widely followed issue as having opening around 75 bid, down from recent levels in the upper 70s, and then fall to 71.75 bid during the mid-day hours. However, he said that levels "solidified" around a 72 bid level during the afternoon, and the bonds went home around that level.

He saw GMAC bonds - GM's financial arm - off more conservatively, with its 6¾% notes due 2014 ease to around 86 at the close, down from highs of 86.75. GMAC's 6 7/8% notes due 2012, which closed Friday at 88.5 bid, opened at 87 bid, 88 offered, but overall on the day, the bonds "didn't seem like they lost much in trading," finishing just half a step lower at 88.

GMAC's 8% notes due 2031, he said, ended about ¾ point lower at 86 bid, 87 offered, "because I guess [investors] are looking for a de-coupling here between the GMACs and the GMs."

Other automotive names were also lower, although none quite so harshly as Delphi.

GM rival Ford Motor Co.'s signature issue, its 7.45% notes due 2031 were seen trading around 74 bid, 75.5 offered - down about three points from the 77-78ish context in which the Dearborn, Mich.-based auto giant's bonds had previously traded.

However, duplicating the pattern seen in GM, with the automotive manufacturer parent's bonds down several points from their prior levels in the upper 70s, while the financial arm's bonds continued to trade at considerably better levels, Ford Motor Credit's 7% notes due 2013 were down 1¼ point on the session at 90.5 bid, 91.5 offered.

A trader saw the non-Delphi supplier sector names "pretty much unchanged" to slightly lower; although he saw Dana Corp.'s 5.85% notes due 2015 go as low as 66 bid, the Southfield, Mich.-based automotive systems maker's bonds came off their lows later in the day to stabilize at 69 bid, 70 offered, down a point.

Other sector names seen easier included Tenneco, whose 10¼% notes due 2013 were quoted down two points at 109 bid, while Dura Automotive's benchmark issue, the Dura Operating Corp. 9% notes due 2009 were seen down as much as three points in the 64 area.

The trader noted that it might be sector sympathy with GM, Ford and Delphi, or just because "the market itself is heavier" by about half a point, with "volatile names down a point," and other names mostly half a point lower.

Exide lower

Car battery maker Exide Technologies' 10½% notes due 2013 were seen down perhaps a point at 78, as the company waded deeper into the controversy provoked when a big bondholder, Murray Capital Management Inc., filed suit in the federal courts over Exide's March Rule 144A bond sale, in which the company raised $350 million. The suit alleges Exide's former CEO Craig Mulhauser misrepresented its financial condition at the time in order to get the private placement done. Exide denied the charges Tuesday.

Refco plunges

Allegations of undisclosed dealings of another sort helped to batter the bonds of Refco, with its 9% notes due 2012 "getting pummeled," a trader said, quoting those bonds as closing at 88.5 bid, 90.5 offered, well down from Friday's levels around 108.625 offered .

Refco, parent of the eponymous giant commodities brokerage firm, said that it had put CEO Phillip R. Bennet and Santo Maggio, the head of Refco Securities, on leave following the discovery of their involvement in the alleged financial irregularities.

The company, besides announcing the ouster of the two executives, warned in its Securities and Exchange filing that its financial statements for the periods ending Feb. 28, 2002, Feb. 28, 2003, Feb. 29, 2004, Feb. 28 and May 31 of this year, "taken as a whole, for each of Refco Inc., Refco Group Ltd., LLC and Refco Finance Inc. should no longer be relied upon."

A trader cautioned that while it is generally "good to buy on the dips," the Refco situation will have to be clarified before it is safe for debt holders to get into get into its bonds or buy its stocks.

Jean Coutu lower

Apart from those disasters, traders saw Canada-based retailer Jean Coutu's 8½% notes due 2014 about two points lower on the session, at 95.25 bid, 95.75 offered.

"Jean Coutu's [quarterly] numbers weren't so hot," another trader said, so it traded off.

He saw the 81/2s trade down to 95, "but then the buyers emerged," and gave the bonds a little boost back up to 95.5 bid, 96.5 offered , and its 7 7/8% notes push up to 99.5 bid, 100.5 offered, each up half a point from their respective initial loss - but each also down two points from Friday's close.

Primary takes a powder

As was the case in Friday's run-up to the three-day weekend, the primary market produced very little news on Tuesday.

The only hard news came from Roundy's Supermarkets Inc., a credit that was already known to be poised for launch.

On Tuesday Roundy's did launch, announcing that it would begin a roadshow Wednesday for a $325 million two-part offering.

The Milwaukee-based company is offering a $175 million tranche of seven-year senior floating-rate notes, which come with two years of call protection, and a $150 million tranche of eight-year senior subordinated notes, which come with four years of call protection.

Bear Stearns & Co. and Goldman Sachs & Co. are joint bookrunners.

Proceeds will be used to repay debt and to fund a dividend.

A $1.525 billion calendar

Primary market observers will recall that no significant changes have taken place on the forward calendar - save for the timing on the Roundy's deal - since last Thursday when Austin, Tex., software company Activant Solutions Inc. completed a $260 million two-part transaction.

In its wake, the calendar contains offerings totaling $1.525 billion from half a dozen issuers.

In addition to Roundy's they include:

* Chinese conglomerate Fosun International Ltd.'s $500 million seven-year notes (Ba3/BB-), via Morgan Stanley and Citigroup;

* Targa Resources Inc.'s $350 million of eight-year senior fixed-rate and floating-rate notes (B2), led by Credit Suisse First Boston, Merrill Lynch & Co. and Goldman Sachs;

* Doane Pet Care Co.'s $150 million 10-year senior subordinated notes (Caal/B-), out of Lehman Brothers;

* Middletown Rancheria Gaming Enterprises' $50 million seven-year senior unsecured notes, a non-rated deal from Jefferies; and

* Comsys IT Partners Inc.'s $150 million of eight-year senior notes (B2/B-) via Wachovia.

Fenn diagnoses "indigestion"

In the most recent issue of Citigroup's weekly Bond Market Roundup, that institution's high yield strategist John Fenn cites four factors that are driving the present sell-off in junk: an economic slowdown, weakening earnings, inflation and the Federal Reserve's persistent tightening of short-term interest rates.

Looking at last week, Fenn remarks: "New issuance ground to a halt, as indigestion has pushed a few issuers to the sidelines as they wait to see how things develop. In a slight surprise, AMG Data reported an outflow of only $69.4 million for the week ended October 5. It was a surprise only because it seemed heavier, although inactivity in the market was probably a better indicator."

Fenn goes on to caution that the market does not appear by any means ready to take down substantial new issue supply.

"We have always said that the one consistent thing that a big calendar brings is outflows and this happened in September, albeit a week later than we would have expected," he writes. "We saw an outflow week of more than $1.3 billion during the month - the largest since late March - and total outflows were approximately $2.0 billion as reported by AMG Data. Retail flows are now approaching negative $10 billion for the year."

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