Some autos continues upside ride; TECO prices new 10-year issue

By Paul Deckelman and Paul A. Harris

New York, May 23- Automotive-linked names for the most part continued to show strength on Monday, as the sector rally that began last week kept going. However, at least two names prominent in last week's surge - Collins & Aikman Products Co. and Exide Technologies - were seen in the breakdown lane, their momentum apparently spent.

Traders said that most other high-yield names were also firmer Monday, although there was no great surge in anything, very little news out, and generally light activity, particularly ahead of Tuesday's scheduled release of the minutes of the May 3 meeting of the Federal Open Market Committee, which could provide some clues as to the Fed's policy-making panel's future interest-rate intentions.

Benchmark credits advanced a quarter to a half a point on "decent volume," according to one source.

The primary market saw drive-by action on Monday as TECO Energy charged in with a $200 million deal that priced tight to talk. The mid- to high-double-B rated paper also played to a book that was 2½ to 3 times oversubscribed. And price talk emerged on an upcoming issue of seven-year notes by James River Coal Co.

Ebb in liquidity

Meanwhile on Monday the liquidity of the high-yield asset class remained under discussion as sources contemplated the latest, record-breaking 14th consecutive outflow from high-yield mutual funds.

One source noted that the $452 million outflow for the week to May 18, as reported by AMG Data Services, leaves the junk mutual funds at approximately negative $7.5 billion, year-to-date in 2005.

Characterizing the high yield mutual funds as "the retail portion" of the high-yield market, one sell-side official said Monday that although it is considered to be a relatively small portion of the overall investor base, there is a "pretty good correlation over time" between the liquidity of the funds and that of the overall investor pool.

"We don't see nearly as much cash sloshing around in the accounts as we did two or three months ago," the official said.

This source added that history indicates that the present market correction could take four to five months from its initial sell-off, which got underway in mid-March, to play out.

TECO tight to talk, oversubscribed

Risk-averse high-yield investors - and word is there is presently no shortage of them - apparently got charged up by a quick-to-market deal completed on Monday by Tampa-based utility TECO Energy.

The company priced a $200 million issue of 10-year senior unsecured notes (Ba2/BB/BB+) at par to yield 6¾%, on the tight end of the 6 7/8% area price talk.

UBS Investment Bank, Citigroup and Morgan Stanley ran the books for the debt refinancing deal.

One informed source told Prospect News that the order book was 2½ to 3 times oversubscribed.

The source added that the market may have concluded that the bond priced "a little bit cheap," noting that late Monday TECO's new 6¾% paper had been "bid up quite a bit" in secondary trading.

The source spotted the paper trading 101.50 bid, 101.75 offered, on the break.

James River talks $150 million

Elsewhere in the energy sector, price talk emerged Monday on James River Coal Co.'s $150 million offering of seven-year non-call-four senior notes (B3/CCC+), which have been marketed via an investor roadshow.

The notes are talked at 9 1/8% to 9 3/8%, with pricing expected to take place late Tuesday via Morgan Stanley.

U.S. accounts eyeing Braskem

Price talk was also heard Monday on Brazilian petrochemical company Braskem SA's $150 million of 10-year senior unsecured notes (/BB-/BB-).

The talk is for a yield in the 9 5/8% area.

The ABN Amro and Citigroup-led deal is expected to price during the middle of the present week.

One sell-side source said Monday that Braskem would no doubt attract attention among U.S. high yield investors.

Meanwhile an emerging markets bond trader told Prospect News that, although the liquidity of high-yield presently appears to be strained, such is not the case for emerging markets, where cash is believed to be flowing into the dedicated EM funds.

"There is definitely money coming into the [emerging markets] asset class," the trader said.

"The view seems to be that EM is somewhat insulated from the problems that are hitting the U.S. corporate market, and for that reason they are attracting some money.

"We've been pretty well stress-tested for the past week or so. And the market has done pretty well."

TECO up in trading

When the new TECO Energy 6 ¾% senior notes due 2015 were freed for secondary dealings, a trader said that the new issue had been "well received,," quoting the bonds at 101.5 bid, 102.5 offered, well up from their par issue price earlier in the session.

Another trader saw those bonds doing even better, at 102 bid, 102.75 offered at the close of the trading day.

The first trader meantime saw TECO's outstanding 7.20% notes due 2011 up a point at 104.5 bid, 105.5 offered.

He did not have any levels on TECO's 10½% notes due 2007, which are to be taken out via a make-whole call, using the proceeds from Monday's new issue, plus cash on hand.

Exide lower

Back among the established names, traders were seeing the market higher, though in generally light trading.

"There was not much to say today," a trader said. One of the few bonds to really move in either direction, and about the only one he really saw heading downward with any kind of conviction, was Exide, the Lawrenceville, N.J.-based automotive and industrial storage battery maker, whose bonds had initially gotten killed last week, beaten down into the upper 60s from the low 80s after it revealed that it would likely violate its credit facility covenants, but then bounced at least part of the way back, to the mid-70s, apparently reacting to its oversold condition and helped by the overall rally in the auto supplier names.

But on Monday, the trader said, those 10½% notes due 2013 sank back to 68.5 bid, 69.5 offered from prior levels around 72.5 bid, 73.5 offered.

The bonds fell in tandem with the company's Nasdaq-traded shares, which lost 57 cents (11.11%) to close at $4.56, on volume of 4.1 million, quadruple the normal turnover. The stock apparently got hit by Friday's revelations that billionaire financier George Soros had cut his holdings in the company to somewhat over 1.1 million shares, or 4.5% of the outstanding float. That's well down from a high of around 1.8 million shares, or 7.3% of the company, which his Soros Fund Management held in March, according to documents filed with the Securities and Exchange Commission.

Collins & Aikman lower

Also in the automotive sector, Collins & Aikman's bonds were seen down about a point, with the Troy, Mich.-based auto interior component maker's 10¾% senior notes due 2011 at 41 bid, 42 offered, while its 12 7/8% subordinated notes due 2012 were bid at six cents on the dollar and offered at seven cents. The fall of a point, he said, "is significant once you get down into the single digits."

Apart from those two troubled names, though, "the rest of the market was firm, unchanged to up half a point," a trader said, "but the activity level seemed like it was near zero."

There was, he said, "no news out on anything" - at least nothing that could produce any kind of meaningful movement.

In the autos other than Exide and Collins & Aikman, he saw ArvinMeritor Inc.'s 8¾% notes due 2012 up half a point at 96.5 bid, 97.5 offered, while Delphi Corp.'s 6½% notes due 2013 and Visteon Corp.'s 8¼% notes due 20102 each held steady, hanging on to last week's gains, at 74 bid, 75 offered, and 82 bid, 83 offered, respectively.

However, there was no further news out on the ongoing talks between Visteon and its former corporate parent and still largest customer, Ford Motor Co., on radically restructuring the Van Buren Township, Mich.-based components supplier in order to bring down its labor costs and put the money-losing company on a solid financial footing.

News reports late last week indicating that the two companies were nearing a deal under which Visteon would shed up to 15 high-cost factories, with Ford taking some back and selling others, helped to boost Visteon's bonds and shares at that time.

Also, Visteon - which last week pulled off a coup by attracting a respected up-up-and-coming Lear Corp. executive, Donald Stebbins, who will become Visteon's new president and chief operating officer - is losing another of its senior officials, Thomas Burke. The vice president of North American manufacturing operations will leave the company at the end of the month to pursue other opportunities.

Fairfax rises

Outside of the autosphere, one gainer was Fairfax Financial Holdings Ltd., whose 8¼% notes due 2015 were up four points to about the 91 bid area. On Friday, the A.M. Best insurance rating agency affirmed Fairfax's issuer credit rating at bb+ and assigned positive ratings to several of the Toronto-based financial services concern's insurance subsidiaries.

It said its action was "the direct result of sufficient holding company cash flow to cover fixed and variable expenses through 2006. The liquidity was partially the result of Fairfax's $300 million equity offering in 2004, coupled with the maturity extensions on existing debt. A.M. Best believes that "management will continue to be proactive in its capital and liquidity management and that they have proven their financial flexibility."

A trader saw AK Steel Corp.'s bonds "up a few sticks," with the Middletown, Ohio-based steelmaker's 7 7/8% notes due 2009 at 95 bid, 96 offered, and its 7¾% notes due 2012 at 91 bid, 92 offered, both up two points on the session, "mostly on short-covering," he opined.

Another steeler on the upside was Oregon Steel Mills Inc., whose 10% notes due 2009 were seen up more than a point at 108.25.

The trader also law Lyondell Chemical Co.'s bonds having "moved up," its 9 5/8% notes due 2007 a point better at 105.5 bid, 106.5 offered, and said that "even Qwest [Communications International Inc.] was up," the Denver-based regional Bell telecommunications operating company's 7.90% notes due 2010 seen two points better at 94 bid, 95 offered.

Qwest is scheduled to hold its annual shareholders meeting Tuesday in Denver, at which chairman and chief executive officer Richard C. Notebaert is to outline where the company goes from here, in the wake of its recent failure to grab MCI Corp. away from rival RBOC Verizon Communications Inc., despite having presented what in nominal terms seemed like a better offer. One reason Qwest had been hoping to acquire MCI was in order to use some of its sizable cash position to bring down the consolidated company's heavy debt load. Notebaert could outline what the company's Plan B for debt management might be.

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