Dana bonds jump as company plans divestitures; Del, Polypipe price deals; funds see $255 million outflow

By Paul Deckelman and Paul A. Harris

New York , Oct. 20 - Dana Corp.'s bonds were seen having firmed smartly Thursday, as investors reacted to the Toledo, Ohio-based automotive components manufacturer's announcement that it plans to restructure its operations, including the closing of some factories and the sale of non-core assets.

That, in turn, sparked activity in the whole automotive sphere, although there wasn't much bond price movement, with Delphi Corp.'s bonds staying within a narrow range, and even Ford Motor Co.'s bonds not much changed, despite the auto giant's big third-quarter loss and its announcement that "significant" U.S. plant closings and layoffs lie ahead.

Outside of the autosphere, troubled Refco Inc.'s bonds were seen down four or five points on the day, and even further below the high levels they initially hit earlier in the week after news of the company's bankruptcy filing and planned sale of its futures unit.

Overall the high-yield market traded flat with no conviction, according to a senior sell-side official.

Another sell-sider marked it flat to slightly negative.

In the primary arena, Del Laboratories Inc. successfully priced its six-year floating-rate note issue late in the session, syndicate sources said, while Pipe Holdings plc, a unit of Polypipe Inc., came to market with a sterling-denominated two-part offering.

And after the day's dealings had finished up, market participants familiar with the weekly junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that $255.4 million more left those funds in the week ended Wednesday than came into them.

It was the sixth straight weekly outflow, following the $406.5 million hemorrhage seen in the previous week, ended Oct. 12; in that time, outflows have totaled approximately $2.533 billion, according to a Prospect News analysis of the AMG figures. Outflows have now been seen in seven weeks out of the last eight, and 13 weeks out of the past 15. During that latter time-frame net outflows have totaled about $3.406 billion - up from the previous week's $3.151 billion total, according to the Prospect News analysis.

For the year so far, outflows have now been seen in 33 weeks of the 42 since the start of the year, against only nine weekly inflows. Cumulative net outflows for the year total around $10.445 billion, according to the Prospect News analysis, up from $10.190 billion last week.

The latest series of outflows pretty much establishes that the junk funds have reverted to the trend seen earlier in the year, when outflows totaling about $6.776 billion were seen in 15 straight weeks from mid-February through late May, according to the analysis. After that, there was a short period in which no clear trend could be seen, with about a month of inflows and outflows showing up on alternating weeks - but since July, money has been almost consistently flowing away from the funds.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants, since they are considered a generally reliable barometer of the overall liquidity trends - and 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.

One sell-side official remarked that it is a substantial outflow, and added that although observers were anticipating a negative number, $255.4 million turned out to be a deeper than expected bite.

The source said that the net outflows now stand at $10 billion-plus, year-to-date.

Meanwhile another sell-side source said that the news is consistent with the market.

"I don't think anyone was expecting an inflow," the source said, adding that the perception on the sell-side remains that high-yield investors continue to have cash to put to work.

Dana rises on restructuring plans

In trading, Dana was clearly the star of the session, traders said, a day that one characterized as "kinda spotty," and another described as "kinda quiet" once you got away from specific names such as Dana.

Its 5.85% notes due 2015 were "up a few [points]," a trader said, comparing the 74 bid, 75 offered closing quote with 71 bid, 72 offered late Wednesday.

At another desk, a trader quoted the company's 6½% notes due 2009 as having firmed to 87 bid, 88 offered from prior levels at 84.5 bid, 85.5 offered, while seeing its 7% notes due 2029 a point better on the day at 74 bid, 75 offered.

A third trader saw even more dramatic movement, calling the 5.85s 77 at the close, up from 74.5, and the 61/2s at 88, a four-point rise on the day.

Dana announced plans to restructure its operations to focus on its core drivetrain products business for light and heavy vehicles.

It plans to sell off three other businesses - engine hard parts, fluid products and pump products. Those operations currently employ about 9,800 people and posted 2004 sales of $1.3 billion.

Besides unloading those non-core operations, Dana said that it would significantly restructure operations at two of the units it is keeping - automotive systems and commercial vehicles systems.

At the former, Dana plans to shutter two Virginia plants that employ a total of about 545 people, and it will shift certain steering shaft operations from its facility in Lima, Ohio to Mexico, which should affect another 100 jobs, out of the 385 people who currently work there.

In commercial vehicles, Dana plans to up production in Mexico, and it will move some operations from plant in Kentucky plant to one in Tennessee, although it did not offer an estimate how many jobs there might be affected.

On top of those job cuts, Dana also said that it would trim its salaried work force by another 5% by the end of next year, primarily through attrition.

And in addition to the asset divestitures and job reductions, Dana plans to save another $25 million next year by imposing a series of fringe benefit cuts, including a reduction in its share of the costs of its U.S. medical benefit plans, the elimination of its employee stock purchase plan, and suspension of its matching contributions to its U.S. and Canadian long-term savings programs.

Dana news prompts auto trading

Dana's gains helped to spur trading elsewhere in the automotive sector, although those names didn't seem to go very far, if at all.

A trader saw Delphi's 6½% notes due 2009 a point better at 66 bid, although he saw the bankrupt Troy, Mich.-based auto electronics maker's normally thinly traded 6.197% notes due 2033 down two points at 34.

Another trader, though saw Delphi's bonds "moving around a little," at lower levels, with the 61/2s actually down half a point at 65 bid, 66 offered. Still another trader pegged those bonds unchanged at 66 bid, 68 offered.

Elsewhere in that automotive area, a trader said he saw Hayes Lemmerz International Inc.'s 10½% notes due 2010 ending at 84 bid, up from 82 bid, 85 offered at the open and from 80 bid, 82 offered going home Wednesday. The Northville, Mich.-based maker of wheels, brakes, powertrain and suspension structures was given a jump-start by the news that it will sell its commercial highway hub and brake drum business to Precision Partners Holding Co. for about $51 million. It plans to use a portion of the net proceeds from the sale to reduce the principal amount of its term B loan and a portion to provide additional liquidity, as permitted by its credit agreement.

Ford steady despite earnings

While there was some movement Thursday in the component companies, traders saw little or no movement in the bonds of Ford Motor Co., even as the second-largest U.S. carmaker announced a third-quarter loss of $284 million (15 cents per share), a sharp reversal from its year-ago earnings of $266 million (15 cents a share). Ford also said on a conference call following the release of its results that it has no plans to follow the lead of larger rival General Motors Corp. and offer to sell a stake in its wholly owned Ford Motor Credit financing arm.

Ford's benchmark 7.45% notes due 2031 were seen unchanged at 75 bid, 76 offered. GM's 8 3/8% notes due 2033 were likewise unchanged at 74.5 bid, 75.5 offered, although its General Motors Acceptance Corp. 7¼% notes due 2011 were seen up a point at 99.5 bid, 100.5 offered.

Refco down

Away from the automotive area, Refco's bonds continued to get pounded on investor angst over what kind of recoveries the bondholders and other creditors stand to get from the New York -based financial services company, which sought Chapter 11 protection earlier in the week.

Several traders quoted the company's 9% notes due 2016 at 49 bid, 51 offered, down about five or six points on the day and down still further from high levels around the 61 bid, 62 offered level that the bonds hit in the aftermath of its bankruptcy filing.

Elsewhere, a trader saw AmeriSourceBergen's 5 3/8% notes "moving around, active" at the 98 bid level, but little changed, with no fresh news out on the Valley Forge, Pa.-based pharmaceuticals and medical supplies distributor.

And he saw Charter Communications Inc.'s bonds "a little better," citing news that several units of the St. Louis -based cable operator had reached accord with their lenders on a new $600 million bridge loan. He quoted Charter's 8 3/8% notes at 100.375 bid, 100.625 offered, up from 99.5 bid, par offered at Wednesday's close.

Del, Polypipe price deals

Three tranches, two of them sterling-denominated bonds from U.K. building supplies firm Polypipe Holdings plc, priced in the primary market for $185 million and £185.7 million of proceeds.

Del Laboratories Inc. priced a $185 million issue of six-year senior secured floating-rate notes (B2/B) at par to yield three-month Libor plus 500 basis points, on top of price talk.

Bear Stearns & Co. and JP Morgan ran the books for the debt refinancing issuer from the over-the-counter pharmaceutical company.

Elsewhere Polypipe Holdings plc priced a £188 million two-part high-yield notes transaction that saw £10 million of proceeds shifted to the secured tranche from the unsecured tranche.

The Doncaster, England, building products company priced an upsized £122 million issue of 7¾% six-year senior secured notes (B1/B) at 98.875 to yield 7.99%. The yield came wide of the 7½% to 7¾% price talk. The issue was upsized from £110 million.

Polypipe also priced a downsized £66 million of 9¾% eight-year senior unsecured notes (B3/CCC+) at 98.625 to yield 10%, again wide of the 9½% to 9¾% price talk. The issue was downsized from £75 million.

The debt refinancing deal, which was led by Deutsche Bank Securities, generated £185.72 million of proceeds.

Ultra-thin calendar

Although the new issue calendar is not empty, sources said Thursday that there is little expectation that any more issues will price before Friday's close, even though two deals are possibilities.

They are Roundy's Supermarkets Inc.'s $325 million in two parts, via Bear Stearns and Goldman Sachs and Middletown Rancheria Gaming Enterprises' $50 million of non-rated seven-year senior unsecured notes, via Jefferies.

On to the final week of October, there was only one offering on the calendar at Thursday's close. New York marine transportation company K-Sea Transportation Finance Corp. is expected to sell $150 million of seven-year senior unsecured notes (expected B2/confirmed B+) via Lehman Brothers.

Also thought to be October business is SS&C Technologies, Inc.'s $250 million of subordinated notes via Wachovia Securities, JP Morgan and Bank of America.

Prospect News inquired of one sell-side official late Thursday as to whether the forward calendar, which is presently ultra-thin, is expected to start building.

The source replied that conditions in the high-yield market are presently not favorable, and added that there are a number of deals on the sidelines awaiting a turn for the better in junk.

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