American Axle paper sees a surge in trading; Tronox notes lose ground; McClatchy gains

By Stephanie N. Rotondo

Portland, Ore., April 22 - Another wave of "new issue mania" hit the bond markets during Thursday trading, as one trader put it, which took some focus away from the distressed debt arena.

But it wasn't only new issues seeing all the attention. Teck Cominco bonds remained active, as well as those of Qwest Communications.

"The Qwest news was kind of dominating," a trader said, pointing to news that Qwest and CenturyTel are in merger talks.

Distressed players have been lamenting the surge of new issues, as far as it takes interest away from the weaker-rated paper. One market source, however, thinks this is just part of the cycle.

"We have to go through this cycle and let all this stuff sink in," he said. "Then we wait for the next event."

That event, he said, could be a missed coupon payment or a "good" refinancing, "and then the secondary market will heat back up."

Among distressed credits, American Axle & Manufacturing Inc. was one of the more active issues. Though there was no name-specific news out, one trader opined that the action was due to investors' larger renewed interest in the automotive realm.

After trading on the active side for most of the week. Tronox Worldwide LLC trading quieted down a little and the bonds lost a bit of weight. There has not been a lot of fresh news out on the company to explain the recent interest, but one analyst believes that a restored homebuilding market might be playing a role.

McClatchy Co. released its first-quarter earnings Thursday, and the new was toward the good side. As a result, the newspaper publisher saw its bonds gaining ground.

Axle paper sees some action

American Axle & Manufacturing bonds saw a surge in trading, though the debt ended "a fraction off," according to a trader.

The trader said about "$20-odd million" of the 7 7/8% notes due 2017 traded at 95 bid, 96 offered.

Another trader quoted the bonds at 95½ bid, 96½ offered, also down slightly on the day.

"Clearly, the whole auto sector has caught a bit of a buzz," the first trader said when asked what had caused the sudden interest in the Detroit-based automotive parts supplier. He also noted that fellow supplier Cooper-Standard Automotive Inc. was reported to be bringing a new deal, which could be credited with generating some of the interest.

Cooper is reportedly planning a $450 million new issue of eight-year notes, according to BusinessWeek. Deutsche Bank AG, Bank of America Corp., Barclays plc and UBS AG are said to be managing the sale, the article said, citing unidentified sources.

A trader saw Cooper-Standard's existing 8 3/8% notes due 2014 at 78 bid on "one little trade" but otherwise saw "virtually no activity" in the Novi, Mich.-based automotive components company's paper.

Also in the automotive space, a trader said that General Motors Corp.'s 8 3/8% benchmark bonds due 2033 "did have some activity" and were "bouncing around" 36 bid, 37 offered most of the day before ending at 37 bid, which he called mostly unchanged.

Another trader saw the GM benchmarks off 1/8 point at 36 7/8 bid, 37 3/8 offered.

Tronox loses ground

Tronox Worldwide's 9½% notes due 2012 were quoted about a point weaker by a trader, as the company reported its March operating results.

The weakness in the notes came after several consecutive sessions of gains.

The trader pegged the issue at 1181/2. Another trader saw the notes at 118½ bid, 119 offered, though he deemed that flat day over day.

The Oklahoma City-based pigment manufacturer posted a $53 million net loss for March on $66.5 million in net sales.

The loss was attributed to a $55.6 million charge for environmental remediation. The company also spent $2 million on reorganization items.

There has not been any fresh news about bankrupt Tronox, but that hasn't stopped its bonds from trading somewhat actively recently. Since the beginning the year, the bonds have risen nearly 40 points, to around the 120 level from levels in the low-80s at which they began the year.

Tronox last year had agreed to sell its TiO2 operations to Huntsman Chemical for $415 million, on the assumption that would be a stalking-horse price to bring out other bidders, but Tronox backed out of that deal in December, claiming it's creditors would do better if the company remained intact and continued the reorganization with the U.S. Bankruptcy Court in New York. It has since lined up commitments for exit financing, continuing to send its bonds up to around 120.

An analyst for a brokerage house said that "the reason why they're rallying is because the market is rallying, and it's all about valuation for Tronox. If valuations [in the chemical sector] are improving, people are thinking that the valuation for Tronox is improving. There has been no new news" on Tronox that would otherwise explain the popularity of those bonds, he said.

On a fundamental basis, he noted the TiO2 business of Tronox sector peers Huntsman and DuPont seem to be doing well - he said that Huntsman recently said they were starting to see a recovery in TiO2 volume levels internationally.

"Titanium dioxide is the white pigment in paint. Two-thirds of the end markets" for the substance - which is also used to bleach paper - is in housing, where paint is used extensively, between new construction and remodeling. The analyst said that "you're starting to see some volume recovery there - Home Depot is hiring," which bodes well for the housing industry.

McClatchy gains on slight profit

Newspaper publisher McClatchy reported its first-quarter results, which showed a slight profit for the period. In response, the company's bonds ended up anywhere from half a point to 3 points on the day.

One market source called the 5¾% notes due 2017 up 1 to 2 points at 72½ bid, 73½ offered. The 6 7/8% notes due 2029 were up as much as 3 points at 64 bid, 65 offered, and the 4 5/8% notes due 2014 gained 1 to 2 points to close at 86 bid, 86½ offered.

At another desk, a trader pegged the 5¾% notes at 72¼ bid, 73½ offered, compared to 71½ bid, 72 offered previously.

"So they are up a bit," he said.

For the quarter, the Sacramento-based company posted a net income of $2.2 million, or 3 cents per share. For the same quarter of 2009, McClatchy reported a net loss of $37.7 million, or 45 cents per share.

Revenues fell 8.2% year over year to $335.6 million. Advertising revenue made up $252.9 million of that, which was also down for the year, by 11.2%. Circulation, however, improved 1.8% to $69.7 million.

"Even though we expect advertising revenues to be down in the second quarter, we believe the ad trend will continue to improve," said Gary Pruitt, chairman and chief executive officer, in the earnings release. "We will remain vigilant on costs, but the savings run rate going forward will be lower than we experienced in the first quarter because we have cycled over the major restructuring initiatives implemented in early 2009.

"Even so, we expect cash expenses to be down in the high single-digit range in the second quarter. And we expect that continued favorable revenue trends and stringent cost controls will allow us to at least maintain if not grow cash flow from operations in 2010."

And, McClatchy noted that its total debt at the end of the quarter was $1.91 billion, a decline of about $43 million from the end of 2009. The dip in its debt load was due a to recent refinancing, in which the company issued new debt to pay of bank debt.

"We are very pleased with our refinancing," said Pat Talamantes, chief financial officer, in the release. "As a result of the debt restructuring we extended approximately $1 billion in maturities from mid-2011 to mid-2013 and beyond, including the $875 million of senior secured notes due in 2017.

"Our liquidity is strong with approximately $185 million in availability under our bank credit lines.

"As Gary noted, our leverage ratio as defined under our credit agreement was 4.65 times cash flow at the end of the quarter, down from 5.26 times cash flow at the end of 2009, and our interest coverage ratio was 3.21 times cash flow. Both of these measures are well within the amounts required to be in compliance with our credit agreement."

Paul Deckelman contributed to this article

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