GM bank debt active on refi news; Northwest bonds up as pilots OK givebacks

By Paul Deckelman and Sara Rosenberg

New York, May 3 - General Motors Corp.'s revolving credit loan saw a strong amount of activity at higher levels Wednesday, bank debt traders said, as the Detroit-based automotive giant announced that that it is working on an amendment or refinancing of its credit facility and provided timing for the potential transactions.

In the junk bond market, Northwest Airline Corp.'s bonds were seen winging their way upward after the bankrupt Eagan, Minn.-based Number-Four U.S. airline carrier said that its pilots had agreed to a package of pay and benefit concessions as Northwest tries to cut its expenses and restructure under Chapter 11.

And the bonds of Tembec Industries Inc. and other Canadian forest-products companies continued to retreat from the highs they had hit this past Friday, chopped down by a combination of profit taking off recent big gains and a stronger Canadian dollar.

In an 8-K filed with the Securities and Exchange Commission, GM stated that it plans to complete either an amendment or a refinancing of its existing $5.6 billion line of credit by the end of the second quarter or early in the third quarter.

Prior to this announcement, GM had revealed that it might not be able to draw on its existing line of credit because of the previously announced restatement of its prior financial results. At that time, the company had said that an amendment or a refinancing was under consideration to fix the problem - somewhat less specific, although not much less informative, than the current announcement, which has the company actually working on such a transaction.

"The timing is new. Otherwise, there's nothing really new here," a bank loan trader added.

The struggling automaker's revolver traded as high as 98 on Wednesday, spurred on by the amendment/refinancing admission, but then settled down a touch to close out the day at 96.75 bid, 97.5 offered, the trader said. By comparison, on Tuesday the bank debt had gone home at 95 bid, 95.75 offered.

GM's bonds were meantime seen lower, with its benchmark issue, the 8 3/8% notes due 2033 down a point at 73.5 bid, 74.5 offered.

Northwest bonds gain on agreement

A trader saw Northwest Airlines' 8 7/8% notes due 2006 up three points on the day at 46 bid, 47 offered, heading skyward on the news that the bankrupt carrier's 4,800 pilots had approved a labor agreement that continues a 23.9% pay cut they had temporarily accepted back in November. About 63% of the captains voted for the deal.

Northwest, which filed for Chapter 11 protection last September, driven to seek protection by a combination of rapidly escalating fuel prices and heavy pension and labor costs, said that the new pilots' pact would save it $358 million annually - an important step as the airline tries to cut its labor costs by some $1.4 billion a year.

Northwest's flight attendants are meanwhile set to vote on a tentative agreement by June 6. Northwest is still trying to reach an agreement on givebacks with two work groups represented by the International Association of Machinists.

Tembec, Domtar slip further

Back on the ground, the bonds of Tembec and such sector peers as Domtar Inc. were seen lower for a third straight day. A trader pegged Tembec's 8 5/8% notes down a point at 60 bid, 61 offered, while Domtar's 7 7/8% notes due 2011 were at 95.5 bid, 96.5 offered, also down a point.

A market source at another desk quoted Tembec's 7¾% notes due 2012 down 1¼ points at 55, while its 8½% notes due 2011 were down half a point at 57.5 bid. Domtar's 9½% notes due 2016 were two points lower at 99.

Another trader saw Tembec's 8 5/8% notes at 60.5 bid, 61.5 offered, while Domtar's 7 7/8% notes were at 96 bid, 97 offered, "all of it a little weaker."

The trader said that "Canadian dollar-type paper," such as that of Canadian forest products companies like Tembec, Abitibi-Consolidated Inc. and Domtar, as well as Bowater Inc. - the latter based in Greenville, S.C., but with extensive operations in Quebec, Ontario, Nova Scotia and New Brunswick - was all off about a point or so, "with the Canadian dollar getting stronger."

Abitibi's 8 3/8% notes due 2015 were down nearly three points on the session at 97.5, while Bowater's 9 3/8% notes due 2021 were a point lower, around par.

The Canadian money unit, which for the longest time had been worth about two-thirds of a U.S. dollar, has recently risen solidly on widespread expectations of more interest rate hikes in Canada, stronger commodity prices and a sliding U.S. dollar. It is currently quoted on the foreign exchange markets at about 90 U.S. cents - the first time it's been that high since 1978.

Besides the stronger Canadian dollar - which hurts that country's exports of lumber, pulp and paper by making them more expensive in the currency of the importing country - another factor in the weakening of the Canadian paper names this week has been profit taking on the gains that the whole sector racked up last week. Those bonds - Tembec in particular - had firmed solidly on market speculation that the United States and Canada would finally come to an agreement to settle a long-running lumber tariff dispute. Sure enough, such an agreement was announced late Thursday, sending the sector up additional points on Friday since under terms of the accord the United States will hand back to the Canadian companies 80% of the $5 billion in tariff penalties it had assessed against Canadian lumber imports on the grounds that the prices were artificially and unfairly being kept low, harming the American forest-products industry.

Tembec had been the biggest gainer, since it stands to benefit the most from the accord, at least among the junk names, having paid about C$317 million in penalties since 2002 (investment-grade lumber producers Canfor Inc. and West Fraser Timber Co. paid more in tariffs - C$830 million and C$419 million, respectively - and will receive bigger refunds).

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