Dana bonds gyrate, trade flat on missed coupon; downsized Bon-Ton prices; funds see $3 million outflow

By Paul Deckelman and Paul A. Harris

New York, March 2 - Dana Corp's bonds "went on a kinda wild ride in a five-point range," a trader said Thursday, as the troubled Toledo, Ohio-based automotive components maker's notes were bouncing crazily around and trading flat, or without their accrued interest, after Dana missed the scheduled March 1 coupon interest payment on two of the issues.

Traders said that apart from Dana and, more broadly, the automotive issues, not all that much was really going on.

Tenet Healthcare Corp.'s bonds were lower, after the Dallas-based hospital operator reported 2005 fourth-quarter and year-end results that were an improvement from a year earlier but were worse than what analysts had been expecting.

A source marked the broad high-yield market one-quarter of a point to one-half a point lower on Thursday, and suggested that there had been some profit taking.

In the primary arena, Bon-Ton Stores Inc. successfully priced a downsized offering of eight-year notes. Alliant Techsystems and Quicksilver Resources Inc. were heard by syndicate sources to be bringing new deals, with Alliant's proceeds to be used to fund a tender offer for its existing bonds. Ball Corp. will be hitting the road next week for a quick marketing campaign for its 10-year note offering.

And after trading had wrapped up for the day, 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, $3.6 million more left the funds than came into them - the fourth straight weeks of outflows, including the $31.3 million leakage the previous week, ended Feb. 22.

During the previous three weeks, outflows totaled $187.9 million, according to a Prospect News analysis of the AMG figures.

With the latest week's outflow, outflows have been seen in seven weeks out of the nine since the start of the year, with net outflows totaling $561.2 million in that time, up from the previous week's $557.6 total, according to the Prospect News analysis.

The latest week's outflow continued the decidedly negative pattern seen in 10 of the last 12 weeks, dating back to mid-December. In that time, net outflows have totaled $1.410 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 $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the $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.

In the primary market Bon-Ton Stores Inc. priced a downsized $515 issue that came wide of the price talk. However the forward calendar's "drip-drip" pace of building quickened somewhat as deals from Ball Corp. and Quicksilver Resources Inc. were announced, and one from Alliant Techsystems seemed poised to spring into the market.

And although AMG Data Services reported only a meager weekly outflow to the high-yield mutual funds - $3.6 million for the week ending Wednesday - one source suggested Thursday that a buy-side which for months has been perceived as being flush with cash may not have that much cash to put to work after all.

Bon-Ton downsizes, comes wide

The junk market maintained its plodding pace of new issuance on Thursday with terms emerging on a single deal.

Bon-Ton Stores Inc. priced a downsized $510 million issue of eight-year senior notes (B2/B-/CCC+) at par to yield 10¼%, 12.5 basis points wide of the 10% area price talk.

Banc of America Securities and Citigroup were joint bookrunners for the acquisition financing which was downsized from $525 million.

Roadshow traffic picks up

For the past fortnight and more, sources have been advising Prospect News that deal volume on the new issue calendar would pick up in March. And Thursday, the second day of the month, did indeed produce at least a smattering of names.

Ball Corp. will hold a Monday to Tuesday roadshow next week for its $450 million offering of 10-year senior notes (assumed ratings Ba2/BB).

Lehman Brothers, Banc of America Securities, Deutsche Bank and JP Morgan are joint bookrunners for the acquisition financing from the Broomfield, Colo., packaging company.

Elsewhere Quicksilver Resources Inc. will begin a roadshow Monday for its $300 million offering of 10-year senior subordinated notes via JP Morgan and Credit Suisse.

The Fort Worth-based oil and gas exploration and production company will use the proceeds to repay debt.

Finally Alliant Techsystems told Prospect News that it will sell $400 million of subordinated notes (existing ratings B2/B) to fund the tender for its 8½% senior subordinated notes due 2011.

Banc of America Securities will run the books for the Minneapolis-based supplier of aerospace and defense products.

Although the company kept its counsel when asked for timing and structural details about the offering one source suggested that news on the deal could surface Friday.

A meager outflow

As has been the case throughout most of 2006, the movement of money into and out of the high-yield mutual funds remained at a trickle for the most recent week.

Sources told Prospect News late Thursday that AMG Data Services is reporting a $3.6 million outflow for the week to Wednesday.

It follows consecutive weekly outflows of $31.3 million for the week to Feb. 22 and $40.3 million for the week to Feb. 15.

All told seven of the nine weekly reported funds flows numbers thus far in 2006 have now come in below $100 million, either positive or negative.

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 largest, followed by a $129 million outflow for the preceding week.

Earlier on Thursday a market source told Prospect News that the cash position of the buy-side, said to have been quite strong at the start of the new year, may be less strong swinging into the final month of the 2006 first quarter.

The source said that the evidence is anecdotal, mainly based on conversations, but asserted that investors presently appear to be shopping the junk market more carefully than had been the case earlier in the year.

Quebecor falls back

The new Bon-Ton 10¼% senior notes due 2014 appeared too late in the session for any kind of meaningful aftermarket activity.

Traders meantime saw Quebecor World Inc.'s new 8¾% senior notes due 2016 - which had priced at par on Wednesday and then moved up to 101 bid, 101.5 offered after they were freed for secondary dealings - to have eased slightly from that peak level, falling back to around 100.75 bid, 101.5 offered.

Dana volatile

Back among the established issues, "Dana was about it," a trader said, saying that apart from the movement in that name, "not a whole lot was going on."

He saw Dana's 6 ½% notes due 2008 - probably its most volatile and widely traded issue - all over the place, starting out at about 67 bid, and then "bouncing around within a 64-69 range," before ending at 66.75 bid, 67.75 offered. Its 5.85% notes due 2013 "were a couple of points back of the '08s," starting out around 64 bid, 65 offered, then sinking to 62 bid, 63 offered, before closing at around 65.5 bid, 66.5 offered.

The company's 7% notes due 2028 and 2029 traded in a range of 62 to 67 before ending more or less in line with the '15s, a "kind of wild ride in a five-point range."

All of the bonds were trading flat, or without their accrued interest, after Dana's late-Wednesday announcement that it had not made $21 million of interest payments that were due March 1 on its 6½% notes due 2009 and its 7s of 2029. Dana invoked the 30-day grace period, meaning it has until March 31 to pay the coupon in order to prevent a default on the bonds, which could in turn trigger cross-defaults on its other notes and its bank facilities.

Dana "was certainly the main driver of activity" on a day when aside from that, "not much was going on," another trader agreed. "There was some back and forth on how they were supposed to trade, now that they've missed the coupon payment on the two issues. I think the consensus is now that they're going to be trading flat of accrued, with no language - meaning no stipulation as to which participant in a trade will be receiving the coupon payment if and when the company makes it."

He saw the 6½% 2009s at 66 bid, 67 offered, and the 7% 2029s at 65 bid, 66 offered, adding that "its kind of hard to say whether they're up or down [from Wednesday's pre-news levels] but they're probably close to flat, in terms of no change," with the loss of the accrued interest effectively offsetting any changes in the bonds' nominal prices, "because they are trading with no accrued."

Yet another trader scoffed at some of the goings on he heard about in Dana - trades that his shop did not participate in. "We're not trading them," he said, adding "they're all idiots out there - the sellers want to keep the interest. They'll say 'I trade 'em flat - but I keep the interest.' Well if that's the case, you're not really trading them flat."

He saw the 6½% 2008 bonds at 67 bid, 68 offered, the 2009 61/2s at 66 bid, 67 offered, the 5.85s at 64 bid, 65 offered, and both the 2028 and 2029 7% bonds at 65 bid, 66 offered, and trading flat.

Still another trader simply pegged the bonds' nominal prices about two points higher, with the '08s at 67 bid, 68 offered, the 5.85s at 64.5 bid, 65.5 offered, and both 7% bonds at 65.5 bid, 66.5 offered, which he said was up 1½ points on the session.

In the credit default swaps market, which trades derivative contracts that act like an insurance policy against a default on a company's debt, the cost of insuring $10 million of Dana debt for five years ballooned out to $3.7 million upfront plus $500,000 per year from $3.4 million on Wednesday. A week earlier, the cost of such protection had been about $2.3 million upfront, plus the $500,000 - before bankruptcy rumors and talk that Dana's efforts to line up secured financing were in trouble began making the rounds of the debt markets.

Other auto names weak

The ongoing Dana debacle continued to cast a pall over other automotive issues - both Dana's competitor parts suppliers and its customers like General Motors Corp. and Ford Motor Co.

GM's 8 3/8% notes due 2033 were seen by a trader down ¼ point at 69.75 bid, 70.25 offered, while its General Motors Acceptance Corp. financing unit's 8% notes due 2031 were down ¾ point at 89.25 bid, 89.75 offered. Besides the fallout from Dana's downward spiral, the GMAC bonds have now been falling for two straight sessions, perhaps in response to comments GM's chief executive officer made Wednesday in Europe which seemed to indicate that GM - which since October has been shopping a 51% interest in GMAC around to potential buyers, though with not much interest expressed - now seems resigned to the idea that such a sale is not going to happen soon. CEO Rick Wagoner tried to put the best face possible on the situation, saying GM has very strong liquidity, so it does not have to urgently do the GMAC deal right now.

Ford's 7.45% notes due 2031 were meantime seen down half a point at 70.5 bid, 71 offered, while its Ford Motor Credit Co. 7% notes due 2013 were also down half a point, at 87.5 bid. Ford said late Wednesday in its annual report filed with the Securities and Exchange Commission that it expects to spend $1 billion before taxes this year restructuring its North American and European operations - and warned that it doesn't expect to make a profit in 2006 as it continues to struggle with declining U.S. market share and rising costs.

Among the other suppliers, former Ford unit Visteon Corp.'s 8¼% notes due 2010 were seen down 2½ points, a trader said, to 77 bid, 78 offered.

Tenet lower on earnings

Apart from the autos, "it was a very boring day," a trader said. He saw Tenet Healthcare's bonds "up and down in a 1½ point range, before the 9¼% notes due 2015 ended at 101.25 bid, 102. 25 offered.

Tenet "is just a mess," another trader said, seeing the bonds at 100.5 bid, 101.5 offered.

Tenet reported a net loss of $286 million (61 cents per share) in the fourth quarter ended Dec. 31. While that was a substantial improvement over the year-earlier $2.19 billion ($4.68 per share) loss, Wall Street was nonetheless disappointed; analysts on average had expected a six-cent-per share loss excluding special one-time items, but Tenet's ex-items loss of $251 million (54 cents a share) wasn't even close.

Tenet's 6 7/8% notes due 2011 were down nearly a full point on the day, a market source said, at 90.25 bid.

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