Visteon continues rise in wake of Ford deal; Ventas prices upsized deal; funds see $226 million outflow

By Paul Deckelman and Paul A. Harris

New York, May 26- Visteon Corp. bonds continued to bask in the warm afterglow of Wednesday's announcement that former corporate parent Ford Motor Co. will take 24 unprofitable plants and their high-paid workers off its former subsidiary's hands and will provide other restructuring aid, allowing Visteon to tray to gain a more financially steady footing.

Activity was seen as brisk on the final full trading session of the week ahead of the three-day Memorial Day holiday weekend, which will see the debt markets in an early close (2 p.m. ET) on Friday, followed by a full closure of the U.S. financial markets on Monday.

Nonetheless the market rallied for the sixth consecutive day, according to sources.

Junk opened strongly and traded up throughout the session, said one source, who marked it nearly three-quarters of a point higher.

Double-B paper continued to firm, said another, adding that evidence continues to mount that investors are presently forsaking risk.

To that end the only activity in the primary market was the pricing of a sharply upsized $350 million deal rated Ba3/BB from Ventas Realty. The company added a five-year bullet tranche on Wednesday. Both parts came tight to talk and were reported to have been well received when they moved into the secondary market.

And after trading had been completed for the day, market participants familiar with the fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that record-breaking outflows continued into the present week. The figures show $225.96 million more left the junk funds in the week ended Wednesday than came into them, on top of the previous week's $452.19 million outflow.

That stretched the funds' losing streak to 15 consecutive weeks, during which time outflows have totaled about $6.776 billion, according to a Prospect News analysis of the AMG figures.

The previous market record of 13 consecutive weeks of outflows took place from Sept. 22, 2000 to Dec. 15, 2000.

That makes up most of the approximately $7.7 billion outflow seen so far this year, which grew from a $7.474 billion cumulative outflow seen the week before, according to the Prospect News analysis. Outflows have now been seen in 18 weeks out of the 21 since the start of 2005, with just three weeks in which more money came into the funds than left them.

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

The fund flow numbers are considered a measure of junk market liquidity trends.

A slowing outward tide?

However, beginning on Wednesday sources on both the buy-side and sell-side began telling Prospect News that as the junk market rallies the outward tide of cash "feels like" it is turning.

And indeed the outflow for the week to May 25, $226 million, is exactly half of the previous week's drain, $452 million.

One source maintained Thursday that the market was seeing some strong buying, with "real money" coming back.

Another sell-sider reported notable "retail buying" during the Thursday session.

Ventas upsized, tight to talk

Certainly the week's three quick-to-market transactions would seem to bear out sources' color that the primary market is open to certain credits, and that investors are presently focused on quality.

None of the issues came with less than double-B credit ratings.

The most recent of the week's trio of drive-bys was completed Thursday by Louisville, Ky.-based healthcare REIT, Ventas Realty, which priced an upsized, restructured $350 million issue of senior notes in two tranches (Ba3/BB).

Ventas Really priced an upsized $175 million issue of 10-year senior notes at par to yield 7 1/8%, on the tight end of the 7¼% area price talk. JP Morgan and Merrill Lynch & Co. were joint bookrunners.

The company also priced an upsized $175 million tranche of five-year bullets at par to yield 6¾%, again tight to the 6 7/8% area talk. JP Morgan, Merrill Lynch & Co. and Banc of America Securities were joint bookrunners for the five-year bullet tranche.

Both tranches were increased by $25 million. The total bond sale was raised to $350 million from $300 million.

The deal had originally been in the market as a single $300 million 10-year non-call-five tranche.

On Wednesday Los Angeles-based homebuilder KB Home priced a $300 million issue of 6¼% 10-year senior notes (Ba1/BB+) at 99.051 on Wednesday to yield 6.379%.

The notes priced at a spread to Treasuries of 230 basis points, right on top of the price talk, via UBS Investment Bank.

One market source told Prospect News on Thursday that the participating accounts included some investment-grade names.

And the present week got underway with TECO Energy driving through with a $200 million issue of 10-year senior unsecured notes (Ba2/BB/BB+) at par to yield 6¾%, on the tight end of the 6 7/8% area price talk.

Not a true test

One sell-side source who was digesting the news of the latest mutual fund outflow on Thursday maintained that three drive-by deals mentioned above hardly comprise a true test of the primary market's health.

"Those are all double-B names," the source insisted. "The market is always open for deals like that."

Ventas, and that's it

Amid thinning volume Thursday afternoon, sources suggested that for all practical purposes the primary market is closed until May 31.

Only one deal is presently in the market. Equity Inns Partnership LP (Equity Inns Inc.) has been marketing a $65 million offering of seven-year senior unsecured notes (B1/B+) via Morgan Keegan.

A source close to the deal told Prospect News on Thursday that the Germantown, Tenn.-based lodging REIT hopes to get the deal priced somewhere around the 7% level, and added that it is expected to price during Friday's abbreviated session.

Ventas gains in trading

When the new Ventas Realty bonds were freed for secondary dealings, traders at several desks saw the new issue very well received, with both the 7 1/8% senior notes due 2015 and the 6¾% seniors due 2010 having pushed up to about 102 bid, 102.5 offered, from their respective par issue prices earlier in the session.

Visteon keeps on gaining

Back among the established issues, the session continued to be a joyride for Visteon Corp., whose bonds had been firming over the previous few sessions on market speculation that it was close to a restructuring deal with Ford, and which then rose again Wednesday when the two companies officially announced that they had reached a tentative agreement that will let the money losing Van Buren Township, Mich.-based automotive components maker get out for under 20 unprofitable U.S. plants and four more in Mexico, with Ford taking those plants over, for the moment, as it then attempts to sell them. The carmaker also released Visteon from about $2 billion of liability for related to the Ford-UAW post-retirement health care and life insurance benefit obligations for former assigned employees and retirees and certain salaried retirees; will reimburse up to $550 million of further restructuring costs by Visteon; will pay $300 million for inventor; and will provide a $250 million secured loan so that Visteon can repay a like amount of 7.95% bonds scheduled to come due on Aug. 1

In Thursday's dealings, Visteon "seemed a little better," a trader said, observing that the company's 8¼% notes due 2010 traded above 90, although he saw those bonds "settle back into the high 80s later on," not much changed on the session.

However, another trader pegged those bonds going home at 92, up from 88.5 on Wednesday, while its 7% notes due 2014 firmed to 84.25 bid from 81.5. The 7.95s, already trading around the par levels at which they will be taken out, were seen up perhaps 1/8 of a point to 100.25

A third trader agreed with the second that the 81/4s "moved up a couple of points" on the day, finishing at 92 bid, 94 offered, while the 7s closed at 83 bid, 85 offered, up a couple of points.

Visteon's New York Stock Exchange-traded shares, which jumped 14.35% on Wednesday after it became official that Ford will help out is struggling offspring, were up another 39 cents (5.44%), to $7.56, on volume of 6.8 million shares, more than twice the usual turnover.

Other auto names continue rise

Visteon's good news had much of the auto parts sector coming along for the upside ride; a trader saw Dura Operating Corp.'s 8 5/8% notes due 2012 up a point at 90.5, and its 9% notes due 2009 a quarter-point better at 67.25. Delphi Corp.'s 6½% notes due 2009 were up 1½ points at 83 bid, while its 7 1/8% notes due 2029 were half a point better at 69. TRW Automotive Inc.'s 11% notes due 2013 were two points better at 108.5 bid.

Another trader saw the Dura 9% notes considerably higher on the day, at 71 bid, up two points on the session.

Icon gains on patent decision

Outside of the automotive realm, Icon Health & Fitness Inc.'s 11¼% notes due 2012 were seen having pushed up to 74 bid from prior levels of 70.25; the Logan, Utah-based maker of exercise equipment said that a federal judge in Seattle had effectively cleared the company of all charges that it had infringed upon the patents of rival exercise equipment market Nautilus Group Inc. The latter's lawsuit seeking damages from Icon, which was supposed to have gone to trial next month, was dismissed.

Nautilus said it will appeal the ruling to the Federal Circuit Court of Appeals, which has twice ruled in the company's favor on past claims. Nautilus filed a total of three suits against Icon, alleging patent infringement.

Pathmark firms

Elsewhere, Pathmark Stores Inc.'s 8¾% notes due 2012 were slightly better at 98 bid, up from 97.75. The Carteret, N.J.-based supermarket chain operator said in a Securities & Exchange Commission filing that it had rejected an unsolicited acquisition offer from an unidentified suitor at $8.75 a share - about 50 cents per share below current market levels.

It also said that the pending transaction announced in March, under which Yucaipa Cos. will invest $150 million in a 40% stake in Pathmark, is on track to close in mid-June.

Asbestos names gain on committee OK

Asbestos company bonds were seen up solidly, on the news that the Senate Judiciary Committee approved legislation setting up a $140 billion mechanism to process claims of people alleging they developed medical problems as a result of past exposure to asbestos. That bill now goes onto the full Senate, although there remains considerable opposition to the controversial bill.

A trader saw bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc.'s bonds having moved up to 89.25 bid, from 86 previously, although bankrupt Toledo, Ohio-based insulation maker Owens Corning's notes gained just a quarter-point to 83.25.

Another trader, however, saw Armstrong "pretty much the same," at around 86 bid, but saw Owens having been "at one point up three or four points, to the mid-80s, before ending up two points," at 82 bid, 83 offered.

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