GM bonds gyrate at higher levels on upsized IPO hope; other names slide on market malaise

By Paul Deckelman

New York, Nov. 15 - Bonds of Motors Liquidation Corp. - the "old" General Motors Corp. - were busily trading at mostly higher levels on Monday, as the "new" GM's much-anticipated midweek IPO drew nearer, the old debt apparently given a boost by reports that the price of the shares might be increased from levels estimated last week, or the size of the stock offering increased, to meet the brisk demand investors have expressed.

But away from GM, bonds were seen lower pretty much across the board, knocked down by the glut of Junkbondland new issuance which has produced some difficulty in absorbing all of that new paper - some $11 billion last week alone and another nearly $3 billion just on Monday.

Also weighing on the market, traders said, were struggling stocks, tumbling Treasuries - investors remaining skeptical of the Federal Reserve's plans to re-flate the economy with its $600 billion bond purchase program - and worries about new debt problems in Europe.

They also said that with year-end fast approaching, some investors were just selling paper and taking their money off the table to lock in the hefty gains they have notched this year.

The across-the-board retreat pushed lower such familiar names as Rite Aid Corp. and NewPage Corp.

Dean Foods Corp.'s bonds continued to languish in the lower 90s, after having been hammered down some 7 or 8 points last week by the Dallas-based food company's worse-than-expected quarterly earnings and its surprise announcement that its chief financial officer will leave soon.

GM higher as IPO nears

A trader said that General Motors bonds - technically, Motors Liquidation Corp., the entity formed last year to hold the debt and other unwanted assets of the "old" General Motors as the carmaker restructured through the bankruptcy court and then the "new" GM, General Motors Co., consisting of the carmaker's most profitable operation, like its Cadillac, Buick and Chevrolet lines, emerged from bankruptcy - were "the paper of choice" on Monday, quoted firmer as the "new" GM's mid-week IPO approaches.

A trader quoted GM's 8 3/8% benchmark bonds due 2033 at 36½ bid, 36¾ offered, with over $35 million of the bonds changing hands on Monday, putting the benchmarks at or near the top of high yield's Most Actives list.

Another trader saw those bonds at 36 3/8 bid, 36 5/8 offered, calling them up 3 points on the day.

At another desk, a market source saw the GM's moving around in brisk trading between lows around 35 and change and highs just under 38 bid, before going out at 36½ bid, calling that up a point on the day.

The source saw other GM bonds doing even better, with its 7.20% notes due 2025 up as much as 4 points on the day, ending at 35½ bid. GM's 7.70% notes due 2016 were little changed, at just over 35 bid, but its 7 1/8% notes due 2013 were up nearly 2 points on the day at 35½ bid.

Holders of the "old" GM's legacy bonds are scheduled to exchange their paper for about 10% of the new stock when it is issued, giving them a vested interest in the company's valuation, as gauged by the IPO.

News reports on Monday indicated that the "new" GM might price those shares as much as 14% above previously reported levels, in response to solid investor demand. That could mean a level as high as $33 rather than the $26-$29 range previously reported.

There were also reports that GM and its underwriters, looking at an order book oversubscribed by as much as six times, might up the size of the IPO from $10.6 billion to as much as more than $13 billion, counting the 10% greenshoe.

The IPO is scheduled to price at the close of trading on Wednesday.

Market feeling the strain

Away from GM's bravura performance's though, a trader opined that "I think, in general, [the market is] getting dinged a little bit."

He said that the secondary side was affected by the backup in the new-deal market as "the dregs of the new issues are starting to come out in full force, and is starting to take a little bit of a toll."

For instance, he noted the difficulties which Monday's $1 billion drive-by issue from Ally Financial Inc. - formerly GM's captive automotive financing arm GMAC, until the two companies mostly parted company several years ago - was having in the secondary market; those 6¼% notes due 2017, which had already priced well below par at 98.602 to yield 6½%, were seen having fallen as low as 97 bid, 97 5/8 offered late Monday.

He estimated that the market "is off a solid ½ point across the board, with a little less conviction.

"That's what I'm seeing all day today - people selling stuff."

Macroeconomic concerns were seen weighing on the market, from the jitters in Europe over Ireland's debt situation, which could cause a Greece-like bailout, to investor angst at home, as Treasuries "got crushed," a trader said, with yields gapping out for a second straight session. The 10-year Treasury's yield jumped to 2.95% from 2.77% on Friday. A week ago, the 10-years were at 2.53%.

A trader suggested that the Federal Reserve's plan for a second-round of quantitative easing - abbreviated by newspaper headline writers as QE2 - could be stoking some fears in the market, noting that before the central bank announced its plans to pump $600 billion into the market by buying that amount of Treasury bonds over a period of some months, "you could have re-financed a 30-year mortgage for 4 3/8%. Now, it will cost 4¾%. If the Fed is trying to help the consumer, it's having the opposite effect."

He quipped that "just like that crippled cruise liner [off the California coast], a lot of people in the market don't want to tow this QE2 in."

Time to lock in those gains

A trader suggested that another key driver behind the selling might be that "a lot of people have made a lot of money. It's getting near the year-end and people want to kind of clean up [their account books] a little bit."

After having made the kind of money suggested by statistical indexes - the Merrill Lynch High Yield Master II index, for instance sees the junk market's year-to-date return at nearly 15% - "nobody wants to give it back in December." Such investors would likely take the proceeds from selling their junk bonds and put it into "short, safer paper, and not worry about it.

"You certainly don't want to get caught in the one [name] where there is news - and then have to explain why you held onto it."

At this time of year, he said, "the pressure downward is always a bit greater than it should be - but it is, and therefore that's where [the bonds ] trade and you've got to mark the books. You don't wait around much longer."

Rite Aid in retreat

The trader said that the downturn - which started last Wednesday heading into the Veterans' Day holiday, after the market, according to statistical indexes, had hit new highs for the year on Tuesday - "seems pretty broad-based, even stuff that was doing well, all the things like Rite Aid, that had really ridden up nicely, are probably off 3 or 4 points in the last two or three days."

The Camp Hill, Pa.-based drugstore chain operator's 8 5/8% notes due 2015, for instance, were being quoted Monday down a deuce on the session at just over 88 bid.

Another market source pegged those bonds as low as 86½ bid, down a point on the day, and saw its 6 7/8% bonds due 2028 fall to 55½ bid from 58 previously. However, another long-dated issue, Rite Aid's 7.70% bonds due 2027, actually firmed a little to 63 bid, up a point.

Among the higher-priced Rite Aid bonds, its 6 7/8% notes due 2013 were off by ½ point at 92½ bid, while its 7½% notes due 2017 were likewise ½ point lower, at 951/2. Its 9¼% notes due 2013 held steady at 86 bid.

Dean Foods still flailing

Dean Foods' 7% notes due 2016 - which had been trading above par a week ago but then cascaded down multiple points after the company released worse-than-expected third-quarter results and also said that its respected chief financial officer, Jack Callahan, would leave the company at month's end to take a similar position with another firm - continued to struggle on Monday.

A trader said that the bonds - which had fallen as low as around a 92¾ context at the tail end of last week - had traded as high on Friday as 943/4-95, and "today, just a few million changed hands," at 93¼ bid.

The 7% notes he said, "are definitely down a solid 8 or 9 points in a week."

He said the bonds' behavior was an illustration of the market rule that "no one wants surprises." He said that even if "earnings alone aren't great," it might not be enough to push the bonds downward, "but when you get earnings plus someone resigning, that just causes guys to look for the door."

Harrah's hit again

A trader saw Harrah's Entertainment Inc.'s easier, continuing the trend seen over most of last week when the Las Vegas-based gaming giant's bonds, previously boosted by investor optimism over its upcoming IPO, gave those gains back, falling from the 90s into the upper 80s.

"I think some of that was predicated on when you bring a dividend deal, that sort of puts the thought of IPOing a little further on the back burner."

However, he said that "on the other hand, they're holding" not too far below where they finished last week. He saw its 10% notes due 2018 - which had eased to around the 89-plus level on Friday from prior levels in the low 90s over several sessions, closing out on Monday at 88½ bid, calling that down a point.

He saw the Harrah's 11¼% notes due 2017 at 111½ bid - they had recently topped 113 - but said the decline was "nothing too sinister."

Paper names quiet

Paper company paper was seen "a little quiet today," a trader said.

Another quoted Miamisburg, Ohio-based coated-paper manufacturer NewPage Corp.'s 11 3/8% notes due 2014 at 92 bid, calling that down a point on no news, while seeing Catalyst Paper Corp.'s 7 3/8% bonds due 2014 unchanged at 68 bid.

At another desk, though Richmond, B.C.-based Catalyst's '14s were being quoted up 1¼ points at 69¼ bid.

Real distressed little seen

A trader said that while there are a few names here and there which could be considered really distressed, "the true distressed market has been so - dare I say? - non-existent for most of this year. There just aren't that many issues," forcing distressed investors to go into more mainstream high yield names to find anything worth trading.

But he also said that "one positive is that a lot of stuff that's down is trading down on [just] a couple of million bonds - there isn't a lot of big size. There wasn't great volume today." He estimated that overall volume was just "a little bit over $1 billion.

"It is still reasonably orderly, so I think that we're going to plod along, right into Christmas."

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