Auto bonds skid badly on Dana results; New Reclamation prices upsized deal

By Paul Deckelman

New York, Jan. 17 - After pretty much having idled in neutral for most of the past week following their fast start out of the gate at the beginning of the year, automotive sector names were seen careening downward Tuesday, skidding lower after Toledo, Ohio-based parts supplier Dana Corp. swung to a more than $1 billion third-quarter mega-loss from a year-earlier profit.

In the new-deal segment, one offering was seen having priced, an upsized issue for South Africa-based waste recycling company The New Reclamation Group. Otherwise, it was mostly a calendar-building sort of day, with Indalex Aluminum Solutions heard getting ready to hit the road Wednesday with a new two-part offering of eight-year notes. Price talk meantime emerged on previously announced upcoming deals from AMC Entertainment Inc. and Downtown Resorts LLC/Downtown Capital Corp.

But after having been riveted on the new-deal arena during Friday's abbreviated pre-holiday session, when R.H. Donnelley Corp. had brought a gigantic $2 billion-plus behemoth of a deal, market focus seemed to shift back to the secondary Tuesday, players' attention morbidly pulled there by the flaming car wreck that was the automotive sector.

A market source saw the overall junk market ¼ point lower, continuing the negative trend seen last week, with the automotive area down a full point and Dana's bonds down and its credit default swaps widening out even worse than that. The source said that while trading volumes were muted throughout the day, there was some buying going on, mostly under the radar, at lower levels.

At the center of all of the carnage was Dana, which reported a net loss of $1.27 billion ($8.50 per share), for the three months ended Sept. 30 - a sharp deterioration from its year-earlier profit of $42 million, (28 cents per share), despite sales having edged higher in the latest period to $2.4 billion from $2.11 billion last year.

Most of the loss - well over $1 billion of it - was attributable to very large charges that Dana took in connection with its efforts to restructure its business, which has been badly hurt by soaring raw materials prices and a slowdown in orders from two of its biggest customers, General Motors Corp. and Ford Motor Co.

Dana said that excluding those charges its loss from operations was $63 million, which still represented a reversal from its $39 million profit a year ago.

A market source pegged Dana's 5.85% notes due 2015 at 69 bid, down from 71 previously, while seeing its 7 1/8% notes due 2028 drop to 69.5 bid from 72. Even the short-term bonds got whacked, with Dana's 6½% notes due 2008 ending at 80.75 bid, well down from 84, and its 6½% notes due 2009 falling to 78.875 from 82.75 previously.

Another trader saw Dana's bonds down about two points across the board, with its 5.85s going home at 68.5 bid, 69.5 offered and its 6½% 2009 bonds at 78.5 bid, 79.5 offered.

Dana's New York Stock Exchange-traded shares meantime plummeted $1.40 (20.59%) to a close of $5.40, on volume of about 7.4 million, four times the norm.

Dana pulls other auto names down

"The whole auto sector was sloppy on Dana," the second trader said, with ArvinMeritor Inc.'s 8¾% notes due 2012 also down a deuce, at 94 bid, 95 offered, and Lear Corp.'s 8.11% notes due 2009 a point lower at 91.5 bid, 92.5 offered. GM's benchmark 8 3/8% notes due 2033 were 1½ points lower at 68.5 bid, 69.5 offered.

He did see Metaldyne Corp.'s 11% notes due 2012 pretty much unchanged at 81 bid, 82 offered, with the Plymouth, Mich.-based automotive stamping company "still milking the asset sale" that was recently announced - the company will unload its underperforming North American forging operation for $126 million in cash and stock.

Collins & Aikman plunges

But the prospect that Collins & Aikman Corp. could seek a buyer for all or part of the bankrupt Troy, Mich.-based interior components manufacturer's operations, reported in Tuesday's editions of The Wall Street Journal, not only did not help prop the company's deeply distressed bonds - those securities tumbled even worse than Dana's or any other automotive name.

Its Collins & Aikman Products Co. 10¾% senior notes due 2011 nosedived six points to 32.5 bid, 33.5 offered, while its 12 7/8% junior notes due 2012, already down in the single digits, held steady around a 7 bid, 9 offered context, a trader said, although at another desk, those '12s were quoted having gone as low as 5 bid from 8¼ previously.

While the Journal story said that the company, which slid into bankruptcy last May, has sent out an information pack to other auto parts companies as well as financial groups that could be buyers, and quoted chief executive officer Frank Macher as saying that it will begin the process by seeing whether there is any interest in C&A's auto-fabrics and convertible-tops businesses, the story "might also be interpreted that they don't have any major buyers - you would hope that they'd announce that have a deal or something," a trader said, "at least a stalking-horse kind of bid.

"I'd say that the fact that they didn't - even given this amount of time - I would interpret that negatively. It might also maybe even point to a possible Chapter 7 - liquidate the thing [rather than restructure the company] and it'll be done".

A market source at another desk opined that it "looked like the autos were getting hit," seeing the GM 8 3/8s half a point lower at 69. Meanwhile its 7.20% notes due 2011 were at 74.5, down two points.

He also saw Dura Operating Corp.'s 9% notes due 2009 half a point down at 55 and the Rochester Hills, Mich.-based components maker's 8 5/8% notes due 2012 a full point down, at 82.75.

"Quite a few [in that sector] got hit," he said.

Granite steady on purchase

Elsewhere, traders saw little movement in Granite Broadcasting Corp.'s bonds in response to the news that the New York-based TV station owner will acquire an upstate New York CBS affiliate for $45 million. A source saw its 8 7/8% notes due 2008 at 92 bid, and its 9¾% notes due 2010 were at 91.

He also saw nothing going on with Caraustar Industries Inc.'s 7¼% notes due 2010, steady at 93.75; the Austell, Ga.-based packaging maker unveiled plans to exit the coated recycled boxboard and specialty contract packaging businesses as part of a strategic transformation plan.

And holders of the former MCI Inc.'s bonds were apparently not much impressed with Verizon Communications Inc.'s offer to buy back the MCI 7.688% notes due 2009 and 8.735% notes due 2014 at 101 as a change of control offer made following the recent closing of Verizon's acquisition of the long-distance company. The '09s were seen trading at 103.5 bid, while the '14s were hovering at 111. MCI's 6.908% notes due 2007, not included in the offer, were in fact trading at 101.

Donnelley dips

R.H. Donnelley's new bonds, meantime were seen down from the highs they hit after they were freed for dealings following their pricing Friday.

A market source saw the new 8 7/8% senior notes due 2016 at 100.5 bid, 101 offered, down a point from Friday's late levels, but still above their par issue price. And he saw the Cary, N.C.-based telephone directory company's new 6 7/8% senior discount notes due 2013 at 91.5 bid, 92, down 1¼ points from their highs but still above the 90.081 issue price.

New Reclamation prices

In Tuesday's new deal action, the sole pricing seen was The New Reclamation Group's upsized issue of new 8 1/8% senior secured notes due 2013. The offering was increased to €253 million from the originally proposed €245 million, and came to market via Citigroup.

The Johannesburg, South Africa-based waste recycling company plans to use the new-deal proceeds to fund an acquisition.

AMC, Downtown talk

Among deals which have not yet priced, the most well-known name making news Tuesday was Kansas City, Mo. -based movie theater operator AMC Entertainment Inc. Price talk emerged on its $325 million offering of 10-year senior subordinated notes, which are expected to come to market Thursday via joint bookrunners Credit Suisse, Citigroup and JP Morgan. Those notes are expected to price to yield between 10½% and 10¾%.

Price talk also emerged on Downtown Resorts' planned $140 million offering of eight-year senior secured notes. The deal was talked at 11 ½% to 11¾%.

That deal is expected to price Wednesday, via bookrunner Lehman Brothers and co-manager CIBC World Markets.

And Indalex Aluminum was heard about to hit the road Wednesday to market its $280 million, two-part offering of eight-year notes.

The bonds will be sold by an underwriting syndicate led by book-runner JP Morgan.

Even with such activity, a market source predicted that less than $1 billion of new issuance would be seen this week, well down from the roughly $5 billion that priced last week. However, he said that some $9 billion of additional deals are being marketed right now.

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