Bally, Ford up on strategic moves; Jean Coutu subs keep sliding

By Paul Deckelman and Paul A. Harris

New York, Aug. 25 - Bonds of Ford Motor Co. and Bally Total Fitness Holding Corp. were each seen higher Friday on news that the management of both underperforming companies seemed to be taking steps to improve their respective fortunes - Ford reportedly in talks on selling the carmaker's money-losing Premier Automotive Group, among other Ford news coming across the screens late Thursday and on Friday, and Bally signing a confidentiality agreement with its largest shareholder, Pardus Capital Management, which will give the hedge fund give Pardus "certain nonpublic information about the company for the purpose of evaluating and negotiating a possible strategic transaction with the company," Pardus said in Securities and Exchange Commission filing.

Another upsider was Metaldyne Corp., the Plymouth, Mich.-based automotive parts maker - a big supplier to Ford and other original-equipment manufacturers - maintaining the momentum seen Thursday on market speculation that a buyer might emerge for the company.

Going the other way for a second straight session were the subordinated bonds of Jean Coutu Group Inc., a day after the Canadian pharmacy operator announced plans to sell its nearly 1,900 Eckerd and Brooks drugstores in the United States to Rite Aid Corp. in a $3.4 billion cash and stock deal that includes Rite Aid's assumption of those $850 million of bonds.

The high-yield primary market, meantime finished off a nothing week by doing exactly that - nothing - with those participants actually around and not off on the traditional late-August vacation getting their ducks in a row for post-Labor Day business.

And even back in the secondary market, a trader said, "it was a slow day in high yield, my friend."

Another agreed that "it was a basically quiet day. Ford was up a lot, while Rite Aid and Jean Coutu traded a bit - but aside from that, there was not a hell of a lot going on."

Ford firms on news flurry

He saw Ford's signature issue, the 7.45% notes due 2031, up 1½ points on the day, "and maybe a touch more," at 78 bid, 78.5 offered, while the carmaker's Ford Motor Credit Co. financial arm's 7% notes due 2013 were also up 1½ points, at 91.75 bid, 92.25 offered.

A source at another desk saw those bonds having opened Friday at 77.5, up from the previous session's finish at 76, and then push as high as 79.5 before coming off that peak to end at 78.5, up more than 2 points on the session. The Ford Credit bonds, meantime, went out at 91.5, the source said, up about ½ point from Thursday.

The first trader attributed the movement to the slew of news stories about the Number-Two domestic carmaker, which finds itself losing a ton of money - $1.4 billion in the first half of the year - losing market share to rivals such as Japan's Toyota, which last month passed Ford for the first time ever to take over second place in the United States, both behind perennial industry leader GM, and losing favor with investors and analysts, who say the venerable company founded by Henry Ford a century ago must seriously re-invent itself if it is to continue to survive.

Those stories, taken collectively, seem to show a Ford management stirring itself to try to pull the company out of the ditch into which it has been driven.

Jaguar to be sold?

For instance, Ford was reported in talks to in talks to sell some luxury auto brands, such as the prestigious but money-losing Jaguar nameplate, and the pricy Land Rover, to an investment group led by the company's former chief executive officer, Jacques Nasser - the man who created Ford's Premier Automotive Group.

Bloomberg news was reporting that the talks do not involve another high-end European brand, Volvo. While the news service quoted several unidentified people close to the talks as saying Ford is looking to sell the brands, it mentioned the possibility that a joint venture of some sort might emerge instead.

Nasser was Ford's CEO from 1999 to 2001 before his ouster - chairman Bill Ford said that the company had "lost focus" under Nasser's leadership - and after that joined JPMorgan Chase & Co.'s One Equity Partners LLC, where Nasser is senior partner for mergers and acquisition, and is heading the reported Jaguar talks, according to the news service.

Possible Citi role

Also making waves on the Ford front was former Treasury secretary Robert Rubin, who resigned from Ford's board of directors to avoid the appearance of a conflict of interest, since Rubin is also a director and prominent executive at Citigroup Inc. - and his departure would seem to clear the way for the banking giant to take an active role in Ford's efforts to right the ship.

"Citigroup's multifaceted relationship with Ford could raise a question whether my relationship with Ford and Citigroup creates an appearance of conflict. Although no conflict currently exists and while I would have liked to remain involved, I have with great regret concluded that I should resign from the board at this time," Rubin said in his letter of resignation from the Ford board.

News reports on Friday raised possibilities such as Citigroup advising Ford on the potential sale of part or all of its credit arm - a step rival GM took some months ago - or providing financing for an alliance with another company or to take the automaker private.

Both of the latter possibilities were being floated around in the news media on Wednesday and Thursday. The Wall Street Journal reported Wednesday that Bill Ford has approached Carlos Ghosn, the CEO of Japanese carmaker Nissan and its French partner, Renault, about the idea of Ford joining their global alliance, should Nissan-Renault's current round of alliance talks with GM not work out.

USA Today meantime reported that members of the struggling auto giant's founding Ford family, including Bill Ford, were considering taking the company private, which would give the CEO and his high command more freedom to move quickly to try to turn the carmaker's fortunes around without having to answer to public shareholders. Henry Ford's heirs currently own 5% of the outstanding shares and control 40% through a separate class of stock.

Ford has declined comment on the stories.

"I guess the people [in the junk market] feel that where there's smoke, there's fire," the trader said of the various stories and speculation about what Ford's doing, "and it looks like there's a little fire over at the Ford campsite."

Bally bonds strengthen

The idea that a problem-plagued company is finally trying to do something to get its house in order was also seen as the catalyst for a rise in Bally's bonds.

A trader cited the news that Chicago-based fitness chain Bally and Pardus Capital have agreed on a procedure for Bally to give Pardus confidential information as the motivating factor behind a 1½ point rise in Bally's 9 7/8% notes due 2007, which he saw at 91.5 bid, 92.5 offered.

A source at another desk saw those bonds easier, dipping about 3/8 on the day to 91.625, but did see the company's 10½% notes due 2007 up ¾ point at 98.25.

At yet another desk, a market source saw the 9 7/8s rise to 93.125, a gain of about 1½ points, while the 101/2s finished at 98.25, up 1/4.

According to Pardus' filing, the hedge fund can nominate individuals for election to Bally's board of directors, can bring business before a stockholders meeting and can conduct a proxy solicitation in support of director nominees under the terms of its agreement with the company. However, it has also agreed for now to not acquire any additional Bally stock.

Pardus and the company's second-largest shareholder, Liberation Investment Group, have been critical of the company's management for allegedly failing to move quickly enough to deal with the company's problems. A move by dissident shareholders to oust CEO Paul Toback earlier this year failed, but the embattled executive did finally resign recently.

Metaldyne adds to gains

Another company whose bonds have gotten a lift on the idea that there could be a management change is Metaldyne. On Thursday, the auto parts maker's notes firmed after DebtWire reported in a story that a buyer might emerge for the company, and that momentum seemed to carry through to Friday, when a market source saw its 11% notes due 2012 move as high as 80 bid from prior levels around 77, although the bonds came off that peak late in the day to end quoted at 78.5. Meantime, its 10% notes due 2013 were seen little changed, around the 95 area.

Another source saw the 11s up 5/8, at 77.125, while the 10s were ½ point better at 95.5.

However, a trader at another shop opined that "they had their run [Thursday]. I don't think they're a whole lot different [Friday]," with the 10s at 95.25 bid, 96.5 offered and the 11s at 76.5 bid, 77.5 offered.

Jean Coutu subs still slide

That trader did see some difference in Jean Coutu's 8½% subordinated notes due 2014, which "were everywhere, bouncing around," before settling in at 92.25 bid, 93.25 offered, down about 2 points from Thursday's close, and way down nearly 8 points from the par levels those bonds briefly held on Thursday on initial response to the announcement of the company's deal with Rite Aid.

Traders speculated that the bonds had moved up on investor hopes they might be taken out as part of the deal, but slipped back when it became apparent that they were not going to be, although they will be assumed by Rite Aid.

Jean Coutu's other issue, its 7 5/8% notes due 2012, held steady at the 105 mark to which those bonds moved Thursday from their prior levels around 99.

Market flat and quiet

A high yield syndicate official said that the broad market was flat to perhaps a little better on Friday.

Meanwhile the primary market remained becalmed, with sources saying that little to no new issue activity is expected during the four-and-a-half market sessions left to play out before the three-day Labor Day holiday. That holiday weekend is a traditional summer-fall boundary marker in the high-yield market.

Once the market re-opens on Tuesday, Sept. 5, sources say, primary market activity is expected to step up dramatically.

A one-deal week

Only one issue priced during the week that ended on Aug. 25.

In a hybrid deal run off a high-grade syndicate desk, Houston-based services provider to the oil and gas industry, Enterprise Products Partners LP, raised $206 million of proceeds by pricing an upsized $200 million add-on to its 8 3/8% fixed-rate to floating- rate junior subordinated notes due Aug. 1, 2066 (Ba1/B+/BB+).

On Tuesday that deal came at a 310 basis points spread to Treasuries, where it had been launched.

Wachovia Securities ran the books for the add-on which was upsized from $150 million, and came at a dollar price of 103.104 resulting in a 7.915% yield to worst.

Maintaining the margin

Tallying the Enterprise Products deal, at Friday's close the market had seen slightly more than $85 billion of year-to-date issuance in 246 dollar-denominated tranches.

Hence 2006 continues to outpace 2005 in terms of year-over-year dollar issuance. At the Aug. 25, 2005 close the market had seen just under $67 billion in 263 tranches.

So according to Prospect News data 2006 issuance is running a little more than 21% ahead of 2005 issuance, in terms of the dollar amount issued.

Prospect News asked a high yield syndicate official on Friday to forecast total issuance for 2006. This source, commenting that through most of 2006 issuance has run approximately 25% ahead of 2005 issuance, added that the new issue market is likely to maintain that margin right through the end of the year.

Given that total 2005 issuance came in at just over $104 billion, again according to Prospect News data which tallies junk-rated, dollar-denominated Rule 144A and registered issues, if the market does indeed maintain its 25% year-over-year margin as the syndicate official estimated that it would on Friday, total issuance for 2006 should come in right around $130 billion.

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