John Maneely slides on buyout issues; GM, Ford rise with market; LCDX gains ground

By Sara Rosenberg

New York, Oct. 17 - John Maneely Co.'s term loan fell on Friday as news emerged that the buyout of the company is in jeopardy and that the parties involved in the transaction are now battling it out in court.

Also in trading, General Motors Corp. and Ford Motor Co. both saw their term loans bounce higher as the cash market in general felt stronger, and LCDX 10 ended the day better as well.

In other happenings, the deleveraging of hedge funds has become a very common topic of conversation amongst loan market participants, especially with the recent news about Highland Capital Management, and while this trend is already being blamed for the pressure in the secondary, some are worried that there's still more pressure to come.

John Maneely softens

John Maneely's term loan plummeted during the Friday session after a Bloomberg story came out saying that the buyout of the company may be falling through, according to traders.

The term loan was quoted at 65 bid, 75 offered, down from previous levels of 86 bid, 89 offered, trader said.

In August, it was announced that Novolipetsk Steel, a Russian steel producer, signed a definitive agreement to acquire John Maneely from the Carlyle Group and the Zekelman family for $3.53 billion.

The plan was to finance the transaction with available bank commitments, including an already established $1.6 billion pre export finance facility and a $2 billion bridge commitment provided by Merrill Lynch, Deutsche Bank and Societe Generale.

On Friday, Bloomberg reported that Carlyle filed a lawsuit against Novolipetsk Steel, accusing the company of backing out of the purchase agreement.

The lawsuit claims that Novolipetsk Steel tried to negotiate a lower purchase price for John Maneely after failing to close the buyout by Sept. 29.

John Maneely is a Beachwood, Ohio-based manufacturer of welded steel pipe.

GM, Ford trade higher

General Motors' and Ford's term loans posted some gains during the trading session in sympathy with the rest of the cash market, according to a trader.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 43 bid, 46 offered, up from 41 bid, 45 offered on Thursday, the trader said.

And Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 45 bid, 47 offered, up from previous levels of 42 bid, 46 offered, the trader continued.

"Whole auto space is feeling better. Whole loan market feeling better," the trader remarked in explanation of General Motors' and Ford's bank debt performance.

GM, Chrysler merging?

Recently, there has been some buzz that General Motors and Chrysler LLC could end up merging, and chatter on Friday was that the talks regarding this matter might be speeding up.

When asked whether the new rumors might have also helped spur General Motors' term loan higher, the trader said that it wasn't likely.

"Don't think that has anything to do with it. Not sure if people put a lot of faith in that," the trader added.

Cash, LCDX inch up

The overall cash market felt a little bit better on Friday and LCDX 10 rose as well, despite equities ending the day down, according to traders.

The par cash market was described by one trader as unchanged to up about a point, and by a second trader as up about a point or so, with some things maybe up more depending on the name.

"I guess there are some buyers out there," the second trader remarked.

As for the distressed cash market, that was labeled as being up about one to two points on the day, another trader said.

Meanwhile, LCDX 10 was seen at 82.75 bid, 83.25 offered at the open, sources said. It then continued to grind higher so that by late afternoon it was quoted at 85.20 bid, 85.50 offered. Towards the end of the day, it came back in a little to go out around 84.80 bid, 85.20 offered, sources added.

By comparison, on Thursday, LCDX 10 closed out the day around 83 bid, 84 offered, according to one source, and around 84 bid, 84.10 offered, according to a second source.

"[LCDX] bounced all over the place today. Futures were way down this morning. [The index] was trading off its lows. I think guys were short covering. But it's Friday; things get quiet, [so hard to tell]," one source told Prospect News.

On the equities front, Nasdaq closed down 6.42 points, or 0.37%, Dow Jones Industrial Average closed down 127.04 points, or 1.41%, S&P 500 closed down 5.88 points, or 0.62%, and NYSE closed down 22.10 points, or 0.37%.

Hedge fund selling in spotlight

With the recent news about Highland Capital Management, the unwinding of hedge funds has taken a top spot in peoples' minds, and these sell-downs could continue to push the market lower, according to a sources.

"Hedge funds deleveraging is the talk of the market," one source said, pointing out that Highland Capital is the most recently and publicly talked about hedge fund that is currently undergoing the process.

According to recent news reports, Highland Capital is closing its Highland Crusader Fund and its Highland Credit Strategies Fund as a result of the instability in the market.

"If they sell loans, looking for bids, they could flood the market and prices could keep going down," the source said regarding what type of affect this trend could have on the secondary loan market.

The source added that with hedge funds looking to sell and not buy, the primary market will continue to remain quiet.

Highland puts a face on hedge fund problems

"Everyone in the market knew that hedge fund unwinds were causing a significant part of the price action of the last six weeks. Highland's just a name to put on that," a sellside source remarked.

"Forced selling of various sorts should be viewed as 'the new overhang,' unlike the 2007 primary calendar, which was the old overhang. There's plenty of cash in T-bills and money markets and everyone knows loans are silly cheap, but they don't want to buy too early. When the forced selling is over and prices move up, I would expect a panic buying binge.

"If the loan market is not fixed, the high-yield market can't be fixed, and the loan market won't be fixed until primaries can be issued at 98 or above," the sellside source continued.

"Long term, fewer hedge funds and less leverage means less volatility in bank loans so that they resume the market characteristics one would expect from senior, secured, floating-rate instruments. It will take a while for institutional investors to understand that - they will price in too much risk expectation based on this once in a lifetime market," the sellside source added.

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