Visteon firms as Ford deal seen near; Ventas Realty will hit the road

By Paul Deckelman and Paul A. Harris

New York, May 20- Visteon Corp. bonds and shares were once again higher Friday, spurred on by news reports indicating that the Van Buren Township, Mich.-based automotive systems maker was getting close to finalizing a restructuring deal with former corporate parent - and biggest customer - Ford Motor Co. that would let the struggling Visteon sharply cut its labor costs.

Visteon, in turn, was seen towing many of its fellow auto suppliers higher, a decisive change from recent weeks, which saw the sector getting pounded around as its main U.S. customers, Ford and General Motors Corp., were having their own problems.

Overall the junk was again marked higher on Friday, according to a market source, despite news that the market had undergone a record-setting 14th consecutive weekly outflow from the high yield mutual funds - $452 million leaving during the week ending May 18, as reported by AMG Data Services.

The source added that junk mostly rode a rising tide in the equity market to end slightly higher on the week.

In the primary market, however, the session came and went in near-radio silence, as no issues priced, although health care REIT Ventas Realty showed up with a $150 million offering of 10-year notes (Ba3/BB) that it will begin roadshowing on Monday.

Back in the secondary market, Visteon was clearly leading the parade for a second straight day

"Wow!" exclaimed one trader, as he saw Visteon's 7.95% notes scheduled to mature on Aug. 1 having firmed to 98.75 bid, 99.75 offered from 97 bid, 98 offered the previous session, while its 7% notes due 2014 jumped to 77 bid, 78 offered from Thursday's levels around 71 bid, 72 offered - and those bonds had already risen about five points on Thursday to begin with.

"The bonds were definitely stronger," he declared. "All of the Visteon paper was up."

The trader also saw the company's 8¼% notes due 2010 having pushed up to 82.5 bid, 84.5 offered on Friday from 76.5 bid, 77.5 offered, and those bonds had risen to that Thursday close from 71.5 bid, 72.5 offered at the end of trading on Wednesday.

Another trader saw the 7.95s up a point at 98 bid, 99 offered, saw the 7s at 75.5 bid, 76.5 offered, and saw the 81/4s at 81.75 bid, 82.75 offered, all "definitely better on the day."

Visteon's New York Stock Exchange-traded shares - which on Thursday had jumped $1.24 (32.46%) on five times the normal volume - kept right on climbing Friday, tacking on another $1.51 (29.84%) to close at $6.57 on volume of 1.8 million, about nine times the average daily turnover.

The first trader said "the news about Ford maybe buying back the plants from Visteon is what gave a bid to this whole sector - the idea that Ford is going to be the backstop for this company."

Ford spun Visteon off in 2000, and remains Visteon' largest single customer. However, Visteon has been unprofitable, saddled by high labor costs that it inherited from Ford at many of its facilities. About 17,500 Ford workers have been assigned to Visteon plants by the Number-Two carmaker, and although Ford still pays them, Visteon reimburses Ford - sometimes as much as $60 per hour.

Ford and Visteon opened talks in September aimed at allowing Visteon to shed some parts of its business to improve efficiency while still meeting its obligations to Ford. In March, the two companies announced an agreement to reduce the wage reimbursements Visteon paid for the Ford hourly workers assigned to it, and Ford also agreed to advance $120 million in payments to Visteon.

The two companies have continued to negotiate since then, aiming at a permanent restructuring of their relationship that might give hard-pressed Visteon a little breathing room.

On Friday, the local Detroit News reported that Visteon and Ford had reached a tentative deal under which Visteon would sell between 13 and 15 unprofitable U.S. plants back to Ford. The deal would also reportedly offer early retirement or buyout packages to about 5,000 members of the United Auto Workers union at those plants. The paper said that the UAW is scheduled to meet Tuesday with Ford and Visteon executives to approve the deal.

Spokesmen for the two companies and the union would not confirm that newspaper report on Friday.

Also Friday, Visteon said that the lenders under its $1.6 billion of senior credit facilities had approved an extension of the company's deadline for delivering its completed first-quarter financial results, which have been held up by its recently announced internal probe into accounting errors and possibly improper conduct by a former senior finance employee. The deadline for handing in the report has now been extended to July 29, from the previous deadline of June 9.

The company also said that its syndicate of lenders agreed to change certain terms under the definition of "pricing grid." All other terms and conditions remained unchanged.

Auto sector higher

Visteon - which also got a boost earlier in the week on the news that Lear Corp. executive Donald Stebbins is coming aboard as president and chief operating officer, news seen by some observers as further proof that a restructuring deal with Ford must be near - led the way among the automotive supplier sector for a second straight day.

Among the names posting gains was Dura Operating Corp., whose 9% subordinated notes due 2009 were seen up four points at 67 bid, while its 8 5/8% senior notes due 2012 gained 1½ points to 87.5 bid.

Tenneco Automotive Inc.'s 10¼% notes due 2015 were seen up more than a point at 110.5, while engine maker Navistar International Corp.'s 6¼% notes due 2012 were up nearly two points at 90.75 bid,

A trader saw Delphi Corp.'s bonds - which had pushed higher for most of Thursday's session, only to surrender those gains and end pretty much unchanged after Moody's Investors Service downgraded the Troy, Mich.-based auto electronics maker's debt ratings - actually finishing higher Friday, with its 7½% notes due 2013 "looking a little better at 73 bid, 74 offered, from 71.5 bid, 72.5 on Thursday. He saw Delphi's 6.55% notes due 2006 firm to 96 bid, 96.75 offered from 95.25 bid, 96.25 offered. However, he pegged the Delphi 7 1/8% notes due 2029 essentially unchanged at 69 bid, 70 offered.

Collins & Aikman drops

But not everyone went along for the upside ride; the trader saw Collins & Aikman Products Co. bonds "not participating," with the Troy, Mich.-based automotive interior components manufacturer's 12 7/8% subordinated notes due 2012 falling back to levels around six cents on the dollar bid, seven cents on the dollar offered, from prior levels about eight cents on the dollar bid, nine cents on the dollar offered.

He also saw the company's 10¾% senior notes due 2011 come in to 43.75 bid, 44.25 offered from Thursday's levels at 45.5 bid, 47.5 offered.

Exide down

Likewise, he said, Lawrenceville, N,J.-based battery maker Exide Technologies' 10½% notes due 2013 "looked a little lower." He had the bonds, which had reached highs of 74.5 bid on Thursday, falling back to 71 bid, 72.75 on Friday.

A trader said that he had not seen "a lot of activity" on Friday in the auto sector, which certainly ended the week well above where those names had started it.

He saw General Motors' benchmark 8 3/8% notes due 2033 "basically flat, or up maybe a quarter" at 73.5 bid, 74.5 offered, while rival Ford's flagship bonds, the 7.45s of 2031, were also unchanged, at 78.5 bid, 79.5 offered.

Those Ford bonds had risen about two points on Thursday on the news that Fitch Ratings had decided to downgrade Ford but only lower its ratings a notch, to BBB from BBB+ previously, thus keeping it investment grade. A trader said the fact that Ford, for all of its problems of weaker sales, higher costs and reduced profitability, is still considered investment grade by two of the three major ratings companies - Fitch and Moody's still have it there, while Standard & Poor's recently junked it - "is important to the whole autos sector's recent rise."

Maytag down, up, ends unchanged

Outside of the autozone, a trader said that recently junked appliance maker Maytag Corp.'s 5% notes due 2015 initially eased on the news that the Newton, Iowa-based company will be acquired for $1.125 billion, plus the assumption of $975 million of debt. "The news seemed not very favorable from a debt standpoint," he opined.

After that, the bonds rallied in the afternoon, reaching a high of 79 bid, 81 offered, before giving back those gains to close at 77.5 bid, 79 offered, unchanged on the day.

Maytag said it has entered into a definitive agreement under which an investor group led by private equity firm Ripplewood Holdings LLC will acquire all outstanding shares of Maytag in a cash merger for $14 per share. Total value of the deal, including debt assumption, is about $2.1 billion. The acquisition is expected to close before the end of the year.

Two-deal week

News that existing junk bonds enjoyed a bit of a bounce in the latter part of the May 16 week certainly did not translate into an improvement in issuance volume in the primary market.

The week ended with $340 million pricing in two dollar-denominated tranches.

Hence the May 16 week came in lower than either of the two weeks that preceded it: $525 million price in three dollar-denominated tranches for the week of May 9 and $495 million, also in three tranches, for the week of May 2.

Friday's session came to an end having seen $38 billion of issuance in 154 dollar-denominated tranches for the year so far. That compares to $63 billion in 256 tranches that had been transacted by the close on May 20, 2004.

Avoiding a pile-on

As mentioned above, although existing issues enjoyed something of a bounce during the May 16 week, the primary market hardly stirred.

One sell-side source, speaking late Friday, said that the syndicate desks may have learned a lesson from their experiences in mid-April.

The sell-sider began the story on March 16, when General Motors Corp. warned that it expected to lose over $800 million during the first quarter of the year.

From that day to this, the sell-sider added, a dozen prospective issuers either pulled their deals or delayed them, most if not all attributing their moves to adverse conditions in the high-yield market.

The source then began counting off the unhappy list:

* March 17: Hayes Lemmerz International, Inc., €120 million;

* March 23: Stile Acquisition Corp./Masonite International Corp., $825 million;

* March 28: Dacom Corp., $300 million;

* March 30: White Birch Paper Co., $400 million;

* April 4: Navarre Corp., $125 million;

* April 19: Cheniere Energy, $500 million, Dimon Inc., $650 million, and Hughes Network Systems LLC, $325 million;

* April 28: Iesy Repository GmbH., €525 million;

* May 6: Premium Standard Farms, $125 million;

* May 9: CellC (Pty) Ltd., €625 million; and

* May 16: El Paso Corp. $272 million.

In the middle of this rout, the sell-sider recounted, prices in the secondary market improved slightly for two days in a row.

"People saw a couple of days of improvement and there was a pile-on," the official said. "Too many people jumped at the market."

The source added that the technical news, i.e. the high-yield mutual fund outflows, had not changed. Nor had the financial headlines improved.

Nevertheless, the official said, between April 11 and April 15, trailing a slight improvement in the secondary market, the new issue calendar went from $4.6 billion to $7 billion, "even in the wake of negative news."

Evidence that the market was unprepared for the build-up might be gleaned from the fact that three issuers pulled deals on Tuesday, April 19, the source noted.

"Clearly people jumped the gun there," the official said.

"There had been a lot of issuers waiting for a window, and they tried to get in before things got worse. And they got rocked because there was an excess of supply.

"I think that may temper what people are doing this time."

The week ahead

Keeping in mind the sell-sider's color, the high-yield forward calendar is light, to say the least, as the primary market moves into the week of May 23.

The market learned on Friday that Ventas Realty will begin a roadshow on Monday for a $150 million offering of 10-year senior notes (Ba3/BB), via JP Morgan, with pricing expected later in the week.

The Louisville, Ky.-based healthcare REIT will use the proceeds to help finance an acquisition.

Beyond that are Equity Inns Partnership LP, with $65 million of seven-year notes (B1/B+), via Morgan Keegan, and James River Coal Co., with $150 million of seven-year senior notes (B3/CCC+) via Morgan Stanley.

As the week of May 23 gets underway the market anticipates only $365 million of bonds to price in three tranches by Friday's close.

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