Dura bonds dominate on restructure plan; Amkor up on earnings; funds see $40.3 million outflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 9 - Dura Automotive Systems Inc.'s bonds were seen solidly higher Thursday after the Rochester Hills, Mich.-based automotive components manufacturer reported lackluster fourth-quarter and full-year numbers and announced plans for a massive operational restructuring that will take place over the next two years. A late-session announcement from Standard & Poor's lowering its debt ratings a notch apparently had little or no impact.

Amkor Technology Inc. notes were seen up for a second consecutive day following Wednesday's late-session release of better-than-expected quarterly numbers by the Chandler, Ariz.-based provider of testing and packaging services to the semiconductor industry.

One source marked the broad market unchanged on Thursday.

Primary market activity was meantime virtually non-existent following a busy session Wednesday which had cleared the near-term forward calendar.

After trading had wrapped up for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $40.3 million more left the funds than came into them.

That more than offset the $27.3 million inflow seen in the previous week, ended Wednesday Feb. 1, and it marked a reversion of the pattern seen in the three weeks before that, during which time outflows had totaled some $406 million, according to a Prospect News analysis of the AMG figures. Over the past five weeks, net outflows have totaled some $419 million, according to the Prospect News analysis.

Outflows have now been seen in four weeks out of the six since the beginning of the year, for a cumulative 2006 net outflow of about $410 million, down from the previous week's $370 million, according to the analysis of the figures.

The outflow also reinforced the decidedly negative pattern seen in seven of the last nine weeks, dating back to mid-December. In that time, net outflows have totaled around $1.26 billion, the analysis indicated.

Those results in turn confirm the continuation of the predominantly negative trend that was in evidence throughout most of 2005, when around $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the approximately $3.236 billion net outflow seen in 2004.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high-yield market liquidity trends - although they only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Dura jumps after earnings

Dura's bonds were seen better as the company posted higher fourth-quarter net earnings, and outlined a broad restructuring of its operations (see related story elsewhere in this issue).

A trader saw its Dura Operating Corp. 9% subordinated notes due 2009 having moved up to 52 bid, 54 offered from prior levels around 49, while its 8 5/8% senior notes due 2012 also firmed, to 82 bid, 83 offered, from Wednesday's closing levels around 80 bid.

Another trader - who saw the bonds even better - commented that they "were definitely really hopping," with the 9s having pushed as high as 54.5 bid, 55 offered, "up a couple of points," after having hit a 50 bid earlier in the morning.

He said that the senior notes also felt better, at 82.5 bid, 83.5 offered, after having traded into an 82 bid earlier.

Dura's Nasdaq-traded shares were up 39 cents (17.03%) to finish at $2.68. Volume of 1.3 million shares was 10 times the norm.

Dura said its net income grew to $10.3 million (54 cents per share) versus year-earlier net income of $1.9 million (10 cents per share), even as revenues declined to $564.4 million in the quarter ended Dec. 31 from $582.8 million a year earlier. However, on a continuing operations basis - which excludes facility consolidation charges, a gain on retirement of debt and the favorable settlement of certain environmental matters - earnings fell to $900,000 (five cents per share) from $4.8 million (26 cents per share) a year earlier.

Dura said that over the next two years, it will undertake and complete what it termed a "significant" restructuring of its worldwide operations. The plan will impact over half of Dura's global operations, either through moving production of selected systems to other facilities, or even outright facility closures. It expects to have the realignment completed by the end of 2007. The company also said that its purchasing organization will "aggressively" cut costs throughout its supply chain, which it said would result in a "significant" reduction of annual purchasing costs.

On a conference call with analysts following the release of the figures, Dura executives said they expected the operational restructuring and the overhaul of the purchasing procedures, all to be done by the end of 2007, would position the company economically to refinance the over $500 million of 9% bond debt before its scheduled maturity in May 2009.

Late in the session, S&P downgraded Dura's ratings, lowering its corporate credit rating one notch to B- from B previously. S&P cited the company's poor near-term earnings and cash flow prospects.

"Dura's operating results have been under pressure because of the very challenging environment facing automotive suppliers, who have to contend with cyclical demand, tough competition, volatile raw material costs and a concentrated customer base that has substantial purchasing power," S&P said in downgrading the company's debt.

"These earnings pressures will continue in 2006, since the company's organic growth is weak and it faces continued difficult industry conditions, including the high costs of raw materials, production and market share uncertainty, and the possibility of labor strife," S&P continued.

While the ratings agency acknowledged that the restructuring initiatives the company outlined are vital to its long-term competitiveness and should produce meaningful tangible benefits, it warned that "the execution risks are great, as Dura must maintain quality and delivery standards while also reconfiguring its manufacturing footprint, realigning its workforce, and continuing to aggressively pursue new business opportunities."

GM dips

Also in the automotive sphere, traders saw General Motors Corp.'s bonds, and those of the carmaker's General Motors Acceptance Corp. financial unit, lower. One saw GM's benchmark 8 3/8% notes due 2033 down ¾ point at 72 bid, 72.5 offered, while GMAC's 8% notes due 2033 were down 1¼ points to 96 bid, 96.5 offered.

Another trader said that there had been very brisk trade in the GMAC bonds, "up in the millions" on volume, but at the end of the day, he said, they stayed within a narrow range around 96. "It was a lot of blah," he said.

Ford Motor Co.'s 7.45% notes due 2031 were seen down ¾ point at 72 bid, 72.5 offered, while its Ford Motor Credit Co. financing arm's 7% notes due 2013 were half a point lower at 89.75 bid, 90.25 offered.

Amkor keeps climbing

Apart from the autos, Amkor's bonds were seen having shot up, helped by its strong quarterly results.

"They surprised everyone," said a trader. "Their earnings were just great."

He saw the company's 10½% notes due 2006 firm to 97.75 bid, 98.5 offered from Wednesday's levels at 96.25 bid, 97.25 offered, all on earnings and guidance."

Another trader - noting the fact that Amkor's bonds had started rising on Wednesday, when the quarterly results were released just after the stock market close, said the name continued to climb Thursday. Its 7¾% notes due 2013, which on Wednesday had firmed two points to 90.5 bid, 91.5 offered, firmed further to 91 bid, 92 offered in trading Thursday.

At another desk, those notes were seen doing even better, going home bid at 92.5, which the source there said was more than three points higher.

Amkor's New York Stock Exchange-traded shares jumped $1.08 (18.75%) to $6.84%. Volume of 18 million shares was nine times the usual handle.

The company said its fourth-quarter net income was $54 million (30 cents per share), reversing a year-earlier loss of $36.1 million (21 cents per share), as sales surged 42%, year-over-year.

Exide steady after results

Exide Technologies' 10½% notes due 2013 were seen holding in a narrow range around 75 bid, 76 offered, with a trader characterizing it as "not much activity going on in that one."

The company said that in the 2006 fiscal third quarter ended Dec. 31 it sharply reduced its net loss to $27.7 million ($1.11 per share) from $439 million ($17.56 per share) a year ago, although the big earlier loss was mostly attributable to a $399 million non-cash goodwill impairment charge and a tax valuation charge of $35.4 million. The latest quarterly loss included $6.5 million in restructuring costs and $1.3 million in bankruptcy-related costs.

The Alpharetta, Ga.-based manufacturer of automobile batteries and other energy-storage systems attributed the better results to price increases on its products and separate surcharges to offset higher costs of lead - a key ingredient in wet-cell batteries - as well as cost cuts from a restructuring the company announced in 2005.

Primary quiet

Meanwhile a ghostly quiet pervaded the primary market as no issues priced and no new deals were announced.

And, as was the case on Wednesday, the session came to a close with no deals in the market. Going into Friday the active forward calendar remained vacant.

Although there are names in the pipeline, sources say none of them appears poised to launch a bond offering.

January an aberration

One portfolio manager who is active in both the bond and bank loan markets told Prospect News on Thursday that the month of January 2006, with its $16 billion of issuance, was an aberration in a pattern of low high-yield issuance that extends back for at least six months.

"There were a few very large high-yield deals that ramped up the numbers in January but it's not indicative of the general market," the portfolio manager said, agreeing to speak on background.

"I'm a little mystified about why issuance is so poor because it continues to feel like the high-yield fundamentals in general are okay, and probably will be okay for the remainder of this year. The return numbers for this year are going to probably be like the ones we saw last year.

"And if the Fed stops and housing is still okay, then the high-yield might actually have a pretty good year."

The portfolio manager said that the perception that the yield curve is flat should naturally make an investor who can buy either bonds or bank loans - yielding approximately the same return - feel inclined toward bank loans.

"The bank loan market is so technically strong anyway that it's not like the high-yield market can just turn the switch and go and buy bank loans instead," the source commented.

"They're getting coupon income. They've got to put it to work somehow. They don't have huge inflows but they don't have huge outflows either. So what are they buying?

"I don't really know."

Inflows and outflows

Only a few hours after the portfolio manager spoke a market source told Prospect News that AMG Data Services reported a $40.3 million outflow from high yield mutual funds for the week to Wednesday.

Examining the number in light of the portfolio manager's color that the market has seen neither huge inflows nor huge outflows, the most recent week's AMG number - the sixth weekly reported number of 2006 - is one of four that came in below $100 million, either positive or negative. That would seem to bear out the color.

The two largest weekly flows thus far in 2006 were both negative ones: a $270 million outflow for the week to Jan. 25, which is the biggest, followed by a $129 million outflow for the preceding week.

Second-lien interest?

Prospect New asked the portfolio manager to comment on an opinion expressed by various high-yield market observers, that the burgeoning second-lien loan market is commandeering financings that would, under other circumstances, be junk bond deals.

The portfolio manager does not lend the theory much credence.

"The second-lien role is often mentioned but I'm not sure it deserves to have the attention that it does," the source said.

The portfolio manager went on to say that first-lien loans have increased as a percentage of capital structures to 50% from 40%, with greater frequency over the past six months.

"Second-liens are still there," the source asserted. "But high-yield accounts are not second-lien buyers in general because [second-liens] are a lot less liquid, so why would they tie themselves up that way? And [second-liens] certainly don't have meaningful call protection, which a lot of high-yield buyers want from their bonds.

"The banks don't want to buy second-lien, so you're left with hedge funds and the primary funds. That's not a huge market."

This source said that the bigger issue is the recent dearth of "riskier non-investment grade deals.

"It just feels like not enough of these deals are getting done."

No one's in a hurry

Meanwhile another buy-side source said that several factors may be mitigating against a heavy volume of new supply showing up anytime soon.

"January was a bang-up month," the source said. "I think people are taking a little bit of a breather here.

"Spreads are pretty tight across high yield too. And people think it's getting close to the end of the [credit] cycle and defaults are going to start to go up.

"So I don't think there is a huge rush to put money into the market like we've seen over the past couple of years when people thought that credits still had a ways to go."

When Prospect News asked the buy-sider whether, trailing January's burst of supply, there is still cash to be put to work in junk bonds the source said: "Absolutely. But not retail money. I get the sense that it's foreign governments and hedge fund/leveraged carry trade money."

Finally, when pressed by the primary market desk for the slightest whisper of a sizable drive-by in the days to come, this buy-sider turned out empty pockets.

"No one has called us to ask if we would be interested if so-and-so came," the source said.

"There is a little bit of a lull at the moment."

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