Visteon up on Ford deal developments; James River Coal prices seven-year deal

By Paul Deckelman and Paul A. Harris

New York, May 24- Visteon Corp. bonds were seen once again on the rise on Tuesday, spurred upward by the news that Ford Motor Co. will take back 15 unprofitable U.S. plants from its former subsidiary as part of a restructuring that aims to get the Van Buren Township, Mich.-based automotive components maker back on a sound financial footing.

Some other auto sector names were weaker in response to Fitch Ratings' downgrade of General Motors Corp.'s debt to junk, following the recent lead of Standard & Poor's.

Outside of the auto zone, bonds of asbestos-challenged companies were sharply higher, as investors expressed relief that a compromise agreement by senators settling, at least for now, the controversy over the use of the filibuster to block judicial nominations clears the way for the Senate Judiciary Committee to continue its work on a long-awaited bill setting up a payment mechanism for asbestos medical claims.

In the primary market, James River Coal Co. was heard to have successfully priced a $150 million issue of seven-year notes, while another energy company - Plains All-American Pipeline - announced plans for a 10-year note issue.

Once again General Motors Corp. left skid marks on the high yield market Tuesday as Fitch Ratings followed Standard & Poor's in downgrading the company's debt to junk.

This time, however, the market declined to pull over completely to the side of the road.

"There was much less volatility today than there was when S&P pulled the trigger," one sell-side official commented Tuesday.

The source added that the downgrade has considerable technical significance because GM bonds will now be removed from the Lehman Brothers investment-grade bond index. Owing to a rule change, the source added, it was previously possible that the bonds would have been removed from the Lehman high grade index in June only to be reinstated, if just temporarily, in July. The rule change, however, factors the Fitch rating into a bond's credit worthiness.

Hence, the source added, GM is now junk.

"Autos fell off as much as four points initially, but came back a lot of the way on the day," another sell-sider said.

"Now people know what is going to happen with regard to the index," the source added, "GM is out, and Ford appears to be in at least until the end of the year.

"I think people are comfortable at least knowing, as opposed to deciding to go out of the index for a month, and then go back in.

"People are more comfortable knowing where they stand."

James River, Braskem price

Two deals of which junk players took note priced during the Tuesday session, according to sources.

James River Coal Co. priced $150 million of seven-year senior notes (B3/CCC+) at par on Tuesday to yield 9 3/8%, on the wide end of the 9 1/8% to 9 3/8% price talk.

Morgan Stanley ran the books for the debt refinancing, acquisition and general corporate purposes issue from the Richmond, Va.-based coal producer.

One informed source told Prospect News that the deal went very well, with strong demand coming together in the afternoon.

The source added that the bonds went out at 100.5, and said that the deal saw good distribution among an above-average number of real money accounts.

Elsewhere a considerable number of high-yield eyes had been trained upon a $150 million offering of 9 3/8% 10-year notes (/BB-/BB-) from Brazilian petrochemical company Braskem SA, according to sources.

The company priced the deal at 99.522 to yield 9.45%, on top of the tightened 9.45% (from 9 5/8%) talk.

The final book size stood at $725 million. The bonds were seen at 101 bid in secondary market action.

Pre-holiday torpor

No new deals were announced during the Tuesday session as one sell-sider said that the primary market might produce very little news in the two full sessions and one abbreviated session that remain in the final full week of May.

Meanwhile with Tuesday's transactions completed, two offerings, both of them from real estate investment trusts, are believed to be winding their way toward conclusions possibly prior to Friday's early close.

Equity Inns Partnership LP (Equity Inns Inc.) is in the market with a $65 million offering of seven-year bullets (B1/B+) via Morgan Keegan.

And Ventas Realty is offering $150 million worth of 10-year senior notes (Ba3/BB) via JP Morgan and Merrill Lynch & Co.

No price talk or precise timing had been heard on either deal as Prospect News went to press on Tuesday.

Visteon higher on Ford hopes

Back in the secondary realm, "the market was very quiet, but stronger," a trader observed. One of the key gainers that he saw was Visteon, quoting the company's 8¼% notes due 2010 as having firmed to 85 bid, 86 offered, from 82.5 bid, 83.5 offered on Monday.

At another desk, a trader had the bonds up slightly more conservatively, to 84.625 bid from 83 previously. He also saw Visteon's 7% notes due 2014 advance to 79.5 bid from 76.5 previously.

A trader said Visteon debt was "all over the place" in an 84-85 context for much of the day, before settling in around 85ish levels.

Visteon's New York Stock Exchange-traded shares were meantime unchanged on the day, at $6.27, although volume of 5 million was about 2½ times the norm.

Visteon and Ford had still not confirmed the existence of a deal by the time the market rolled up trading on Tuesday afternoon - but news reports quoted officials of the United Auto Workers union as having approved the tentative deal, agreeing to bring the arrangement before their nearly 18,000 members who currently work as hourly employees for Visteon at those 15 plants, seven of them in Michigan and the remainder in Tennessee, Ohio, Indiana, Missouri and Oklahoma.

Under the terms being reported, Ford - which spun Visteon off in 2000 - would take two of the plants back directly, with the other 13 to be put into a holding company, which Ford would try to sell. About 5,000 of the affected employees would be offered buyouts.

Such a deal, if approved by the union workers, would be a big step toward pointing Visteon in the direction of profitability. The company has been plagued by a combination of high labor costs, high raw materials costs and sagging orders from its customers, particularly Ford, which still accounts for about two-thirds of Visteon's annual sales.

Visteon reported a loss of $188 million for the quarter ended March 30, a sharp deterioration from its year-ago net income of $20 million. Sales meantime edged up to $4.99 billion from $4.97 billion.

Delphi also higher

A trader said that another auto name headed higher was Delphi Corp., quoting the Troy, Mich.-based automotive electronics maker's 6½% notes due 2013 as having firmed to 75 bid from 72.25, but he saw "nothing else" out of the sector.

A market source saw Dura Operating Corp.'s 9% notes due 2009 about a point better at 67.5 bid. However, another source saw Rochester Hills, Mich.-based Dura's 8 5/8% notes due 2012 down more than a point at 88.5 bid.

GM, Ford unchanged despite cut

The auto sector got some bad news when Fitch downgraded GM's bonds to BB+ from BBB- previously, in line with the recent downgrade of the auto giant's bonds by S&P.

A trader said that GM's bonds, and those of rival Ford Motor Co., were "flat on the day." Another trader quoted the company's benchmark 8 5/8% notes due 2033 at 72.25 bid, 73 offered. Another source saw the bonds at 73.5 bid, but also had them unchanged. A trader quoted the 8% notes due 2031 issued by GM's financing arm, GMAC, pretty much unchanged at 82.875.

Fitch cited negative factors such as high costs and weakening sales of medium and large sports utility vehicles, a major component of GM's sales lineup. It said that the outlook for GM is negative - meaning the company's ratings could be cut again within the next 12 to 24 months.

Collins & Aikman down

An auto name that was lower - not necessarily because of the GM's bad news so much as its own bearish situation - was Collins & Aikman Products Co. A trader saw the bankrupt Troy, Mich.-based auto interior components maker's 10¾% senior notes due 2011 at 40 bid, 41 offered, down from prior levels around 42 bid, 43 offered. Its 12 7/8% subordinated notes due 2012 continued to languish at around six cents on the dollar.

Asbestos names better

Apart from the autos, the big news in the bond world Tuesday was the climb in the asbestos companies' bonds, this following Monday night's news that Senate negotiators had headed off a potentially messy showdown over the use of the filibuster to bottle up judicial nominations - a controversy that threatened to derail the efforts of the Judiciary Committee to report out a bill setting up a claims fund.

A trader saw bankrupt Toledo, Ohio-based insulation maker Owens Corning's bonds all trading in the 79-80 area, well up from prior levels in the low 70s, while bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc.'s bonds were in an 83-85 context, up from previous levels in the upper 70s.

Six Flags jumps

Elsewhere, a trader saw Six Flags Inc.'s 8 7/8% notes due 2010 push up to 91 bid, 92 offered from prior levels around 88.75 bid, 90.75 offered. He said he'd seen no fresh news that might justify such a jump, although it should be noted that the theme park company announced this week the opening of what it says is the world's steepest and fastest roller-coaster, the new "Kingda Ka" ride at the Six Flags Great Adventure theme park in Jackson, N.J., about halfway between New York and Philadelphia.

Six Flags - which last year did not spend very much money on new rides but which has ramped up its capital spending this year in hopes of drawing more visitors, says its "King of Coasters" will rocket riders horizontally from 0 to 128 mph in 3.5 seconds before vertically catapulting them "a mind-blowing 456 feet (45 stories) into the sky at a 90-degree angle. After a brief moment in the clouds, riders descend 418 feet (41 stories) back down to Earth in a 270-degree spiral, only to experience another breathtaking moment of weightlessness as they soar over a 129-foot-tall hill (nearly 13 stories) and then glide back into the station."

Dillard's unseen despite earnings drop

Dillard's Inc. on Tuesday reported a steeper-than-expected 29% drop in its fiscal first-quarter profit, blaming weak demand for women's clothing and furniture.

However, even though the Little Rock, Arkansas-based retailer's NYSE-traded shares fell $2.11 ( 8.29%) to $23.35, on volume of 3.8 million, nearly four times the usual turnover, traders saw its bonds not at all.

"It's hard to gauge," one said. "That doesn't trade at all. There's no liquidity. They're all small $100 million-type issues." He said that the market had "dried up" when institutional investors had "put the bonds away weeks ago" when the retailing sector was being swept by talk of leveraged buyouts and other kinds of consolidation, and several deals were in fact announced, such as the Toys "R" Us LBO. He saw the Dillard 7.15% notes due 2007, the 7.13% notes due 2018 and the 6 5/8% notes due 2018 all most recently in a 99 bid, 101 context, while its 7 3/8% notes due 2006 had recently been around 101 bid, 102 offered.

Another trader agreed that "we used to trade a lot of it [Dillard's], but we haven't seen it in a long time," following the merger buzz in the retailing sector.

Dillard's said that its net income - not including charges and other special items - fell to $38 million (46 cents per share) in the quarter ended April 30, from $53.8 million (64 cents per share) a year ago. Wall Street had been expecting per-share earnings of about 54 cents.

It said that same-store sales - i.e. sales at outlets open at least a year, a key performance metric in the retailing industry - were down 3% in the quarter from year-earlier levels.

The company - which closed four stores during the quarter - said it would continue to focus on closing under-performing stores.

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