Nortel jumps on tax settlement, asset sale; Ford firm on Volvo news; funds add $388 million

By Paul Deckelman and Paul A. Harris

New York, Dec. 23 - Nortel Networks Corp.'s bonds shot up in fairly busy late-session trading on an otherwise lackluster day Wednesday after the bankrupt Toronto-based telecommunications equipment manufacturer announced that it had settled a huge tax bill from U.S. authorities on very favorable terms, for less than two cents on the dollar. Nortel - in the process of selling off its assets to satisfy its creditors - also announced another such asset sale, as well as a funding agreement for intercompany claims among Nortel and its various subsidiaries.

Apart from the Nortel news, Wednesday's trading was seen to be dull, and on sharply reduced volume on the last full trading session of the week; the junk market is scheduled for an early close on Thursday, ahead of Friday's Christmas Day holiday, which will see a complete shutdown of U.S. financial markets.

Elsewhere in what little secondary trading took place, Ford Motor Co.'s paper was seen better - though on very light volume - in apparent response to the news that the U.S. auto maker is close to getting out from under its unprofitable Volvo division by selling it to Chinese car maker Geely -- even though Ford will get back less than a third of the price it paid for the Swedish car manufacturer a decade ago. That still puts Ford well ahead of domestic arch-rival General Motors Corp., which is still struggling to forge a deal to sell its own unprofitable Swedish car operation, Saab, or risk having to just shut it down completely and get nothing for it.

Bonds of American General Finance Corp., were seen lower after Moody's Investors Service downgraded American International Group's consumer lending unit to junk status.

Clear Channel Worldwide Holdings Inc.'s recently priced bonds were quoted by traders having come off slightly from the highs they had hit over several sessions after having come to market last Friday.

Meanwhile, as expected, the final full market session ahead of the Christmas weekend produced no new issue news whatsoever. Increasingly throughout the week, phone calls to syndicate sources have been forwarded to voice mail, and email messages have generated "out-of-office" replies.

The new issue market has very likely concluded its business for 2009, said the few sources who were around to field telephone calls on Wednesday.

Junk funds up by $388 million

As trading was closing down for the day, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif. - a key barometer of overall market liquidity trends - said that in the shortened week ended Tuesday, $387.56 million more came into the weekly-reporting funds than left them. The numbers usually track fund flows for the week ended Wednesday and circulate in the market on Thursday afternoons, but were moved up by a day this week in view of Thursday's abbreviated pre-holiday session.

The latest week's inflow was the 18th consecutive advance, and followed the $415 million cash inflow seen in the previous week, ended Wednesday, Dec. 16, which spanned the customary seven days. During that long run of gains, dating back to mid-August, inflows have totaled $6.2 billion, according to a Prospect News analysis of the AMG figures.

It was also the 25th week in the last 26 in which inflows were seen, dating back to mid-June. Some $8.629 billion of net inflows have been seen during that stretch, according to the Prospect News analysis - a run interrupted only by a lonely $89.9 million outflow recorded in the week ended Aug. 19.

With the end of 2009 now just days away, inflows, including the latest weekly gain, have been seen in 46 weeks out of the 51 since the start of the year, according to the analysis, against just five outflows - the Aug. 19 retreat, a $110 million outflow in the week ended June 24, and three weeks of outflows in late February and early March, totaling $969 million. The inflows, on the other hand, include an incredible 14-week run of consecutive gains, dating from mid-March through mid-June, during which time the funds grew by a record $9.1 billion.

Counting the latest week's number, the year-to-date net inflow for the weekly-reporting funds rose to $20.213 billion, according to the analysis - a new peak level for the year so far, eclipsing the old mark of $19.825 billion recorded the previous week. Funds which report on a monthly basis, rather than weekly, have meantime seen a year-to-date inflow topping $12 billion. Consolidating the data from the weekly and the monthly reporters, aggregate inflows for the year so far total about $32 billion, a market source said.

Such sustained inflows have helped the junk market come roaring back from last year's staggering 25%-plus loss and sharply reduced primary activity totals. Total returns so far this year totaled an eye-popping 56.67% as of Tuesday's close, according to the authoritative Merrill Lynch High Yield Master II index - a new peak level for 2009, handily beating virtually every other major investment asset class.

Meanwhile, the $160.028 billion of new dollar-denominated high yield debt issued in the U.S. market so far this year, as of Tuesday's close -- $129.202 billion of it from domestic issuers - is running 120.87% ahead of the feeble pace of last year's overall primary tally, according to statistics compiled by Prospect News. Domestic-borrower new issuance is 115.82% ahead of its year-ago levels. Industrialized-country global issuance in all major currencies of $174.902 billion equivalent is a blistering 171.05% ahead of last year's pace.

Fund-tracking service EPFR Global of Cambridge, Mass., which uses a different methodology from AMG, did not release any numbers on Wednesday, planning to hold to its usual Thursday timetable.

Any and all cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

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 comprise less of the total monies floating around the high yield universe.

Market indicators continue rise

Among statistical measures of market performance, a trader saw the CDX Series 13 index up ¼ point on Wednesday to end at 99 5/8 bid, 100 7/8 offered, matching the ¼ point gain seen on Tuesday.

The KDP High Yield Daily Index meanwhile was up by 4 basis points on Wednesday at 70.99, after having risen 10 bps on Tuesday. Its yield narrowed by 1 bp, to 8.13%, after having come in by 2 bps in each of the previous two sessions.

In the broader market, advancing issues again led decliners on Wednesday, for a 17h straight session, although the previous day's better than seven-to-six margin had dwindled down to a couple of dozen issues, out of the more than 1,200 tracked.

Overall market activity, as measured by dollar-volume, tumbled nearly 42% from Tuesday's pace.

"There was no volume to speak of in some of the things which I look at," one trader said, while a second quipped that the big transaction of the day "was me out in the parking lot, selling my truck's snow tires."

A third said that things "came to a screeching halt."

Nortel news pushes notes higher

Among specific issues, a trader said that Nortel Networks Corp. "had news coming out" - about its tax status, an asset sale and an intercompany funding plan - which pushed the bankrupt Canadian telecommunications equipment maker's bonds up solidly on the day. He saw the company's bonds, like its 10¾% notes due 2016 shoot up by as much as 6 points to a 67-69 context, versus 63-64 earlier in the day.

A second trader said the bonds had gone to 68 bid, 68¼ offered from the 62-63 level on Tuesday, "so they're up 5 points or so."

Yet another market participant pegged the bonds up 6 points at just over the 68 level.

The first trader said that unlike most of the lightly traded issues seen during the day, whose bond price movements based on one or two trades on a very quiet day were always suspect, "Nortel matters," adding that "bids have started to show up, post-news," and real markets were being made, on late-day volume of over $10 million.

"That's meaty, and it means something."

All during the morning, the Nortel bonds had only moved up by about a point to the 63.5 level, on a couple of large block trades, likely spurred by the news that the company has agreed to sell its Carrier VoIP and Application Solutions assets to Genband, Inc. for $282 million, subject to balance sheet and other adjustments currently estimated at some $100 million, with Genband's bid to be used as a stalking horse offer other potential buyers would have to match when the assets are actually auctioned off.

Sale of those assets is the latest in a series of disposals by Nortel of its assets, proceeds going to repay the company's creditors.

But the bonds zoomed another 4 to 5 points shortly after 4 p.m., ET, in brisk late-day round-lot dealings, the market source said, after Nortel announced that its Nortel Networks Inc. subsidiary had settled some $3 billion of U.S. tax claims against the company for $37.5 million - literally about one-and-a-quarter cents on the dollar.

Nortel further announced that along with subsidiaries Nortel Networks Inc., Nortel Networks Ltd. and certain of its other Canadian and U.S. units currently under creditor protection in Canada or the U.S., it had entered into an inter-company agreement that settles the claims of the various Nortel corporate entities against one another.

New Clear Channel paper backs off

A trader saw that the B tranche of Clear Channel Worldwide Holdings' new 9¼% notes due 2017 was "a little weaker today," having come in to 103 3/8 bid, 103¾ offered from Tuesday's close at 103¾ bid, 104 offered. All of the trading, he said, had been wrapped up by about noon ET, with no follow up seen.

"They did very well in the marketplace" over the past several sessions, he said, after the $2 billion tranche - radically upsized from $150 million originally - priced on Friday at par to yield 9¼%.

"That was definitely the shining star."

The trader saw the San Antonio, Tex.-based broadcasting and outdoor advertising company's other tranche of bonds which priced Friday - the $500 million of 9¼% tranche A notes due 2017, which also came at par - were around 102 bid, 102¼ offered, roughly a point below the B bonds, as has been the case ever since their initial aftermarket dealings after the pricing Friday.

Another trader saw the Clear Channel bonds "pretty much unchanged from [Tuesday], quoting the A tranche at a wider 102¼ bid, 103¼ offered, while the B tranche settled in at 103¼ bid, 103¾ offered.

Ford firmer as Volvo sale starts to gel

A trader said that Ford Motor Co.'s bonds were up ¼ point on the day, though on "very light volume. I think you're not going to be able to tell [whether the gain is genuine] until Monday."

He said that the nation's Number-Two carmaker "is posturing itself for a comeback. You look at the stock [which on Wednesday was trading above $10 for the first time since September 2005], and the bonds are healthy. People feel that all of their short-term maturities are going to get paid."

He noted that Ford's 9 7/8% notes due 2011 are currently trading around 1043/4, "so obviously, people have a lot of faith in Ford meeting their bills."

He also saw Ford's 8 1/8% notes due 2020 are up ½ to 1 point at 98¾ bid, 99¼ offered.

Ford's 7.45% bonds due 2031 continue to hover around an 87-89 context.

"People have a lot of faith in Ford," the trader said. "This paper hasn't hit these levels in quite a while."

Ford - the sole member of Detroit's traditional "Big Three" carmakers that did not reorganize through the bankruptcy courts or need to take federal bailout money like rivals GM and Chrysler - had more good news for investors on Wednesday, as it said that it had essentially agreed to a deal to sell its underperforming and money-losing Volvo Car Corp. unit to Chinese auto maker Zhejaing Geely Holding Co. It projects a definitive agreement for a sale to be signed by March 31, with the sale expected to be completed by June 30. Ford did not say how much money it would get from the sale of the iconic European carmaker, although published reports put it around $2 billion - less than a third of the $6.45 billion which it paid to buy Volvo in the first place back in 1999.

While Ford's effort to unload Volvo seem to be moving into a higher gear, GM is still spinning its wheels when it comes to a sale of its unprofitable Swedish car division, Saab. Several potential deals for the carmaker have fallen apart, and GM has said that it will close down the company to stem the flow of red ink. Dutch luxury car producer Spyker has been in talks with GM in recent days over a possible Saab purchase, but no agreement has been reached.

GM's benchmark 8 3/8% bonds due 2033 were seen down ¼ point Wednesday at 26½ bid, 27½ offered.

AIG unit off after Moody's downgrade

A trader said that American General Finance Corp.'s 5.90% notes due 2012 were "down a couple of points" to around the 82 bid, 83 offered, level, pushed lower on late Tuesday's news that Moody's Investors Service had dropped its ratings on the company - a subsidiary of troubled New York-based insurance giant American International Group - down to B2 from Baa3 previously, stating that the move "primarily reflects Moody's view that the quality and duration of support from AGFC's ultimate parent AIG has diminished."

Moody's noted that AIG has said it will continue to support American General though next November - but warned that after that, "longer-term support from AIG is less certain because of AGFC's diminished strategic importance to AIG."

AIG's International Lease Finance Corp.'s bonds meantime remained mixed on Wednesday, after having retreated Monday and Tuesday in the wake of a threatened Moody's downgrade from Baa3 to B1. Its 5 5/8% notes due 2013 notched a solid 4-point gain to the 83 level, but its 5 7/8% notes, also due 2013, were quoted down more than 4 points to around 78.

Also among the financials, a trader said that CIT Group Inc.'s several series of 7% notes that were issued following its recent emergence from bankruptcy, were "pretty much unchanged" on Wednesday, with its notes due 2013 at 92 bid, 93 offered, its 2014 paper at 90 bid, 91 offered, its 2015 notes at 88 bid and its 2016 and 2017 notes at 86 bid, 87 offered.

The New York-based commercial lender's five series of 10¼ notes were likewise little changed, with its 2013 notes at 101 bid, 103 offered and the other four series, due 2014, 2015, 2016 and 2017, at par bid, 102 offered.

United Rental rallies on no news

United Rentals Inc.'s 7¾% notes due 2013 firmed about 3 points on the session, although there was no fresh news seen out about the Greenwich, Conn.-based company, which rents out construction and industrial equipment.

Those bonds were seen by a market source to have pushed to a closing level around 96 bid, up from 93 late Tuesday, on fairly busy volume of over $12 million. However, the source pointed out that on a strictly round-lot basis, the bonds ended up only slightly from the last previous round-lot trade on Tuesday.

YRC quiet ahead of offer expiration

A trader saw "very little activity, only small pieces" in YRC Worldwide Inc.'s 8½% notes due 2010 ahead of the scheduled 11:59 p.m. ET Wednesday expiration of the Overland Park, Kan.-based trucking company's offer to give the holders of those notes and of several series of contingent convertible notes shares of common stock and class A convertible preferred stock in exchange for the notes.

He said that the 8½% notes opened around 59 bid, which he said was "pretty close to where they were [Tuesday]." However, he said he not seen any activity in them.

"Just quoting, no activity," he reiterated. He also saw no activity in the several series of convertible notes that are also being exchanged for.

After the close YRC announced that it was extending the offer to Dec. 28.

Six Flags strength continues

A trader said he saw Six Flags Inc.'s bonds, such as its 4½% notes due 2015, continuing to move upward, trading at 29 bid, 29½ offered, which he called up 2½ points on the session from prior levels.

There was no fresh news seen out Wednesday about the bankrupt New York-based theme park operator, whose bonds have been firming over the previous several session, after a bankruptcy court judge okayed the company's funding plans and scheduled confirmation hearings for its reorganization plan for March. Some Six Flags bondholders are seeing to challenge the official company reorganization plan during the hearings. Discovery proceedings and other pre-trial maneuvers will begin next month.

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