Auto names move lower as gasoline prices move higher; PanAmSat rebounds

By Paul Deckelman and Paul A. Harris

New York, Aug. 31 - Automotive names, led by General Motors Corp. and Ford Motor Co., were seen lower on Wednesday, as gasoline futures prices jumped in the wake of Hurricane Katrina's disruption of Gulf of Mexico and Louisiana oil operations.

On the upside, the bonds of PanAmSat Inc. were seen modestly higher after two straight days of losses reflecting market angst over the Wilton, Conn.-based communications satellite company's pending acquisition by Intelsat Ltd.

Primary market activity remained nil, with about the only blip on the radar screen being Pacific Energy Partners' planned issuance of some $100 million-plus of new bonds sometime in September.

Back in the secondary arena, a buy-side source termed high yield "sneaky strong" on Wednesday, citing firmer stock prices and a rally in Treasuries that sent the yield of the 10-year government note plummeting to 4.02%

The source added that earlier in the day the market was quoted down an eighth of a point, with traders - some of them marking it down a quarter to a half - claiming that there were more buyers than sellers. However, the buy-sider said, levels did not confirm that commentary.

Going forward, however, $70 per barrel crude oil prices can be expected to put a damper on the U.S. economy, and added that it will initially show up as "non-core inflation" but would be real inflation for low-income people who face long commutes or big heating bills, the buy-sider added.

A trader said "the market traded off pretty hard in the morning," with the widely followed CDX high yield performance index getting down to 100.25 -100.5, but then came off those lows to close a bit higher, with the index at 100.625 bid, 100.875 offered "after equities staged a rally and after Treasuries continued to rally with this indexing which went on at the end of the month. This lengthened maturities, people had to add longer maturities, which gave the market a pretty good bid."

However, he noted the big automotive names continued to skid lower, even as gasoline prices continued to skyrocket, both in futures trading and at the service station pumps.

Even as crude prices fell six cents to $69.75 per barrel of light sweet crude for October delivery on the Nymex, gasoline futures spiked above $2.90 a gallon on Wednesday - up a dollar from last Friday's settlement. Prices at the pumps soared above $3 per gallon in many parts of the country, pushed upward by fears of the hurricane's impact on production in Louisiana and the Gulf, from which the United States gets about a quarter of its vast daily petroleum needs. When the 150 mile per hour storm slammed into the Gulf on Monday, it shut down nearly all of the area's drilling output, and closed down eight refineries and several pipelines along the coast, according to government figures.

President George Bush's decision to release crude oil from the federal government's Strategic Petroleum Reserve to make up for the disruptions in the crude supply from the hurricane were seen having helped to bring down the crude price, but had little or no impact on the gasoline price, since the sharp rise in the price of distillates like gasoline and aviation fuel over the past few months is seen as more of a function of tight domestic refinery capacity amid soaring gas demand - the last new U.S. refinery opened back in 1976 - rather than as a function of crude supply.

All of that is bad news for a U.S. automobile industry already reeling from high gas prices, which have badly cut into sales of the SUVs and light trucks from which Detroit had made much of its money over the previous several years.

And that was reflected in the fall in Ford's benchmark 7.45% notes due 2031, which fell from Tuesday's level around 81.25 bid, 81.75 offered, to around 80,375 bid, 80.75 offered Wednesday, "pretty close to the where they got in '02," the last time when the company's bonds had been so sharply on the downside, the trader said. At one point, he noted, the 7.45s had fallen as low as 79.25 bid, 80.25 offered, before coming off those lows to end where they did.

Things were not much better with GM bonds, with the giant automaker's flagship 8 3/8% notes due 2033 down 1¼ points on the session to 83.75 bid, 84.25 offered. The trader said that the bonds' spread over comparable Treasury notes "moved over 600 again on the bid side, the first time they were over 600 since July 8. That wasn't good."

Delphi down further

GM's former subsidiary, Delphi Corp., whose bonds have been falling steadily over the last few sessions, continued to lose ground on Wednesday, with a trader quoting the Troy, Mich.-based automotive electronics supplier's benchmark 6.55 % notes due 2006 down a point on the day at 85 bid, 86 offered, "continuing their slow, steady decline from around 91-92 at the end of last week."

He also saw Delphi's 6½% notes due 2013 likewise down a point on the day, to 75.5 bid, 76.5 offered.

Dura slips

And the trader saw Dura Operating Corp.'s 9% notes due 2009 "under a little pressure," off a point at 80.5 bid, 81.5 offered, despite a lack of fresh news about the Rochester Hills, Mich.-based automotive components producer.

A market source at another desk saw those Dura bonds down a point to 81, while GM's 7 1/8% notes due 2013 were off a point at around 91. The source saw Delphi's 6½% notes due 2009 down 1¼ points at 81.5 bid, while former Ford components unit Visteon Corp.'s 7% notes due 2014 were down a point to around 89.

Another trader saw the Delphi 6.55s a point down, at 84 bid, 86 offered, while the 2013 61/2s lost a point to end at 75 bid, 77 offered. He also saw the company's 2009 61/2s at 79 bid, 81 offered, and its 7 1/8% notes due 2029 at 70 bid, 72 offered, both off a point.

Besides being affected by GM's problems - since GM, besides being Delphi's former corporate parent, is also its largest single customer and a slowdown in GM's production means a drop in Delphi's sales - Delphi is also being hurt by uncertainty over whether GM and the United Auto Workers union will combine to give Delphi a hand with its spiraling labor costs, a legacy from its spin-off from GM a few years back. Ford gave Visteon such a helping hand earlier this year, agreeing to take 25 underperforming plans and their high-cost workers back. Delphi has indicated that it might have to seek bankruptcy protection if no solution to the labor cost problem is found.

PanAmSat rebounds a little

Elsewhere, PanAmSat's 9% notes due 2014 were seen by a market source up half a point at 105.25. Those bonds had been slammed down to the lower 100s over the past several sessions on bondholder dismay about the proposed $3.2 billion acquisition of the company by Bermuda-based Intelsat, which also said it would assume or repay abut $3.2 billion of PanAmSat debt as part of the deal. Market participants cite the fact that the combined company will have about $3 billion more of debt pro forma for completion of the acquisition than the current $8.5 billion combined level. All three major ratings agencies have put the bonds of the two companies on watch for possible downgrades.

Pinnacle down again

Pinnacle Entertainment Inc.'s 8¼% notes due 2013 - which had fallen several points over the previous two sessions in response to the damage done by Hurricane Katrina to the gaming industry in Mississippi and Louisiana, were down yet another point to 103 bid.

The Las Vegas-based gaming company's bonds have fallen to their present levels from around the 108-109 area before the hurricane roared through Louisiana and Mississippi on Monday, killing scores of people, if not hundreds, and causing severe damage to a number of casinos in the area, including Pinnacle's Casino Magic Biloxi in that Mississippi city.

Pinnacle and other gaming concerns with facilities there must now decide whether they will repair or rebuild their damaged properties - or whether they will write them off and leave the area, unless state officials change their rules and allow the gaming concerns to build land-based casinos, rather than keeping the casinos on barges or riverboats moored to shorefront hotel facilities (see related story elsewhere in this issue).

September's prospects

Although quantitative information seemed to be in extremely short supply on Wednesday, sources nevertheless advised Prospect News that September is going to be a big month in the junk bond new issue market.

With only one full session remaining before the Labor Day break, however, no official launch information has circulated.

Informed sources have disclosed $400 million to $600 million of business expected to launch next week, but when pressed they declined to identify the prospective issuers.

However, a list of probable September business is taking shape, market sources say. It includes:

* AmerisourceBergen Corp. with an $800 million minimum debt refinancing deal via Lehman Brothers;

* Brookstone Inc. with a $190 million LBO deal via Banc of America Securities;

* NBTY Inc. with a $150 million minimum debt refinancing deal via JP Morgan;

* Pacific Energy Partners with a $100 million minimum acquisition financing via Bank of America and Lehman Brothers;

* Panolam Industries Inc. with $150 million of eight-year notes, with Credit Suisse First Boston and Jefferies & Co. leading the acquisition deal; and

* Gamestop Corp. with a $950 million merger-funding deal via Banc of America Securities, Citigroup and Merrill Lynch.

Sources have also warned that quite a lot of activity could arrive unannounced, via drive-by transactions that price in one day or two.

"September is going to be busy," a sell-side source said late Wednesday.

Meanwhile a source in a hedge fund, who earlier in the day spotted the price of a barrel of crude oil at $69.36, said that September should be busy, but everything is predicated upon what is happening with the price of oil.

"People are talking $80 per barrel, but who knows?" said the hedge fund source.

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