Ford bonds firmer despite S&P cut, GM up also; NRG deal to debut; funds see $8.8 million inflows

By Paul Deckelman and Paul A. Harris

New York, Jan. 5 - Standard & Poor's two-notch downgrade of Ford Motor Co.'s ratings and those of its Ford Motor Credit financial subsidiary proved to be, in the words of Billy Shakespeare, much ado about nothing. The financial markets had been expecting that downgrade, particularly in the wake of weak December and 2005 sales figures, and bond traders had already priced it in to the levels at which Ford's debt has been trading. In fact, the company's bonds were actually seen to have firmed on the day.

The automotive sector in general was quite strong, market participants said, particularly the bonds of Ford's larger arch-rival, General Motors Corp., which were seen up about a point, as were the notes of GM's financial division, General Motors Acceptance Corp. And bankrupt Delphi Corp. - a former GM manufacturing subsidiary - was on the rise again, with most observers chalking that up to short-covering or other technical concerns rather than to any kind of fundamental investor optimism about the name.

Outside of the automotive sphere, American Media Inc.'s bonds were seen solidly higher, leading one market source to joke that "maybe they finally found Elvis," referring to the rash of stories about supposed sightings of the allegedly still-living King of Rock 'n' Roll and other wildly sensational celebrity tales and just plain bizarre stories that have regularly appeared in the Boca Raton, Fla.-based publishing company's widely read supermarket tabloids such as the National Enquirer, Star, Weekly World News, The Globe, The Sun and National Examiner. More sober-minded participants, however, linked the rise to news about the company's hiring a new president and chief operating officer.

Late in the day, well after the market close, the company also announced it would refinance its bank facilities.

Overall one market source saw high yield opening firm Thursday morning and soften somewhat during the afternoon.

In the primary market, word was heard that NRG Energy Inc.'s gigantic $3.6 billion bond offering was poised to launch, possibly as soon as Friday.

And after trading had wound down for the day, market participants familiar with the weekly high yield mutual fund low numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, some $8.8 million more came into the funds than left them.

That was a switch from the $371 million net outflow seen in the previous week ended Wednesday, Dec. 28, which had been the third consecutive week of outflows totaling about $850.5 million, according to a Prospect News analysis of the figures. That in turn confirmed the predominantly negative trend that was in evidence throughout most of 2005, when around $11.483 billion more left the funds than came into them, according to the Prospect News analysis. That was a much more severe hemorrhage than the approximately $3.236 billion net outflow seen in 2004.

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 only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

A source added that AMG also reported $201.4 million of inflows from accounts that report on a monthly basis.

Back in the secondary market, Thursday's session was "kind of similar [to the] theme of the last couple of days," a trader said. "The market was very firm right out of the chute - you had guys chasing stuff higher. Towards the end of the day, it seemed to settle in a little bit, and things actually came in a little bit, and were offered.

"But there were no real new issues to speak of. I think a lot of people were just getting back to work" after the long holiday weekend that seemed to continue to spill over into the week, "sort of getting their feet wet in terms of cash balances and whatever, so there was certainly some hedge fund-type buying.

"I think a lot of the sort of real-money accounts are looking at the market and trying to figure out what to buy - they've got cash, but nothing looks that attractive. So they're kind of hoping for the [new-deal] calendar and that sort of thing, which sounds like it's building."

He cited the upcoming NRG deal, as well as talk that "HCA is rumored to be coming with a big deal."

Another trader said that at his shop, they had seen "a lot of buyers across the board. Strength continues as the year rolls on - just buyers probably marking things up a half [point] to a point, across the board."

He saw "a positive tone," but agreed with the first trader in that it seemed that "it's still kind of quiet - not everyone's back yet, not everyone's in there. But certainly, those that are in there are pushing this market higher, to start the year off."

Ford bonds ignore downgrade

Looking at the day's big news in the financial markets - S&P's two-notch downgrade of Ford and Ford Motor Credit, which dropped their ratings to BB- from BB+ previously - he opined that "it was expected, to the point where the bonds really didn't do anything of significance."

In fact, he said, "they actually went up a little bit and then came back down and were essentially unchanged on the day."

He saw the Ford benchmark issue, the 7.45% notes due 2031, finishing at around 69.5 bid, 70.5 offered, unchanged, while Ford Credit's 7% notes due 2013 were perhaps half a point better at 87.5 bid, 88.5 offered, but said there was "nothing to really report there" either.

He said that the lack of any real movement in Ford, particularly to the downside, was somewhat surprising because after S&P downgraded Ford and its credit arm, "they had a conference call and there was some talk of bankruptcy - the word was at least mentioned a couple of times - but there was no real movement, one way or the other."

At another desk, a trader characterized Ford as having "actually done pretty well."

He saw the 7.45% notes as having lost half a point around midday, after the S&P downgrade, "but they rallied late in the day" to end up half a point at 70.25 bid, 71.25 offered, he said. Ford's 8 5/8% notes due 2010 were at 93.5 bid late in the day, a point better.

The trader also saw the Ford Credit 7s at 87.5 bid, 88.5 offered, and its 6 5/8% notes due 2008 at 92.5 bid, 93.5 offered, both up half a point.

In downgrading Ford's ratings, S&P voiced skepticism about whether the carmaker - which late last year unveiled the outlines of a turnaround plan, the details of which it will furnish on Jan. 23 - will in fact be able to actually turn things around, especially given the sharp decline in sales of Ford's bread and butter, the medium- and large-sized sport utility vehicles.

"With the SUV demand having plummeted industrywide, particularly during the second half of 2005, it is now dubious whether even additional new models can be counted on to help restore the company's North American operations to profitability," S&P cautioned.

And noting that the rating outlooks on both Ford and Ford Credit remain at negative, the agency warned that "prospects for Ford's automotive operations are clouded. The ratings could be lowered further if we came to expect that Ford's cash generation would worsen due to further setbacks, whether Ford-specific or stemming from market conditions. Ford would need to reverse its current financial and operational trends, and sustain such a reversal, before we would revise its outlook to stable."

Autos strong

Traders pointed to the fact that if even having suffered a two-notch downgrade failed to put a dent in Ford's bonds, it must be a sign of overall strength in the automotive sector, which seems to be bouncing back from some recent rough going.

A market strategist said in a morning research note that the sector was "making a remarkable move higher this morning, most issues up one to 1½ points," which in turn was "dragging the autos parts sector up as well" to the tune of a point. He said that "the majority of year-end sellers are out of the way, and there is fresh buy interest noted."

The strategist said that the one of the factors towing the auto names higher was "talk that there might be news out next week regarding the sale of GMAC." While he cautioned that some traders "are taking a hard look at the auto rally as prices hit some technical levels and could signal a move lower," overall, the sector rally meantime "is intact."

There was no fresh news out on GM's efforts to sell a majority stake in GMAC to some established, deep-pocketed, investment-grade financial company (thus helping to restore the credit unit's own debt ratings to high grade and cut its borrowing costs, while replenishing GM's sales-diminished coffers by as much as $10 billion to $15 billion), but that didn't stop GM - fresh from having reported sales declines for December and for 2005 on Wednesday - from firming by a point across the board, a trader said.

He quoted the carmaker's benchmark 8 3/8% notes due 2033 at 68.25 bid, 69.25.

"The stock was up quite a bit," he observed, with GM's New York Stock Exchange-traded shares closing up $1.11 (5.72%) at $20.52, on volume of 24 million, up from the 17 million-share average turnover. He meantime saw GMAC'S 8% notes due 2031 up half a point at 99.75 bid, 100.75 offered.

Another trader saw the GMAC bonds push as high as par bid, 101 offered, up about a point from their opening levels, before dropping back to close unchanged at 99 bid, par offered. But he saw parent GM's 8 3/8s a point better, at 68 bid, 69 offered.

Yet another trader saw the GM bonds "basically unchanged" at 67.75 bid, 68.75 offered, while GMAC's 6 7/8% notes due 2011 were half a point up at 93 bid, 94 offered.

A market source at another desk saw those 6 7/8s at 92.5 bid, up a point, and pegged GM's 7 1/8% notes due 2013 also up a point, at 69.5 bid.

Delphi, Dana gain

Auto parts makers, a trader said, "went along for the ride with GM," particularly the bonds of former GM unit Delphi. He saw the bankrupt Troy, Mich.-based automotive electronics manufacturer's 6.55% notes due 2009 at 55.75 bid, 56.5 offered and its 7 1/8% notes due 2029 at 56 bid, 57 offered, both up 1½ points.

Although there was some news out on Delphi, with the federal bankruptcy court overseeing its restructuring having approved an extension of Delphi's exclusive rights to present a plan of reorganization to Aug. 5 from the original Feb. 6 deadline, participants mostly attributed the recent strength in the bonds - this was the third straight session they were solidly higher - to short-covering or other technical factors.

A trader noted that "all of the auto parts names were a lot stronger," with Dana Corp.'s 5.85% notes due 2015 a point better at 73 bid, 74 offered. The Toledo, Ohio-based automotive systems manufacturer's bonds have firmed all this week after the company announced that it had completed its previously announced restatement of various financial reports dating back to 2000 to correct accounting errors, and S&P removed Dana from its negative CreditWatch.

American Media jumps

Away from the automotive sphere, American Media seemed to be an object of some fascination, with a trader seeing the company's 10 ¼% notes due 2009 having improved to 94.75 bid, 95.75 offered from prior levels at 91 bid, 92 offered.

A market source at another desk saw the bonds even higher, at 95.5 bid, up three points on the day, while another trader saw its 8 7/8% notes also better, at 87.5 bid, 88.5 offered, up 1½ points on the day.

Traders cited the company's announcement that American Media - which also publishes such titles as Shape, Men's Fitness, Muscle & Fitness, MPH, Flex, Fit Pregnancy, and Natural Health, along with Country Weekly and the Spanish-language Mira!, in addition to its supermarket tabloids - had hired nearly 30-year publishing industry veteran John J. Miller as its president and chief operating officer, bringing some semblance of stability to its executive suite, one trader said. Miller most recently served as senior vice president/group publishing director for Hachette Filipacchi Media, the U.S. operation of the world's largest consumer magazine company. That and the appointment of Carlos A. Abaunza as chief financial officer "gives everybody a better feeling about the company," a trader said.

The company separately announced that it had engaged J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc. to arrange and syndicate a refinancing of its senior secured credit facilities, along with Bear Stearns, Lehman Brothers and General Electric Capital Corp. as co-agents. American Media said it plans a $60 million revolving credit facility due in 2012 and $450 million term loan facility due in 2013. The transaction is expected to be completed in late January.

Overall, a trader said, "It's been kind of fits and starts - you get a couple of things going early, and then it kind of dies out around lunchtime and then there's a couple of more things in the afternoon. But it's been pretty quiet - a lot of people have just been wondering where to put their money."

NRG powers up the pipeline

Prospect News heard more murmuring about the dearth of new issue news on Thursday, as sources remarked that with the first three sessions of 2006 in the bag, the forward calendar does not quite have the heft that some had been anticipating.

Heft, however, did materialize in the form of a press release from NRG Energy Inc., announcing that the Princeton, N.J.-based independent power producer plans to price $3.6 billion of high-yield bonds during the week of Jan. 23.

An informed source subsequently told Prospect News that the Morgan Stanley and Citigroup-led offering of senior notes (B-) is expected to launch as early as Friday but no later than Monday.

The company will also obtain $4.8 billion of bank facilities and sell $1 billion of common stock and $500 million of mandatory convertible preferred stock.

Proceeds will be used to help finance the $5.8 billion acquisition of Houston-based Texas Genco.

Further down the pipe

Further out along the new issue pipeline (but perhaps not too much farther) sources are looking for issuance to materialize from the merger of Loews Cineplex Entertainment Corp. and AMC Entertainment, Inc.

Another name that has been bandied around throughout the week is R.H. Donnelley Corp., which is expected to sell over $1.8 billion of senior notes during the present quarter to help fund the acquisition of Dex Media.

Nashville-based hospital company HCA, Inc., is expected to show up with perhaps $500 million, one source said. An investor, hearing this, quipped that the news would be if HCA DIDN'T show up.

And from Europe, Ineos Chemicals is expected to soon appear with a mega-deal that could top €3 billion, via a syndicate that would include Merrill Lynch, Barclays and Morgan Stanley.

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