GM off despite Renault/Nissan interest; Rexnord plans big two-part deal

By Paul Deckelman and Paul A. Harris

New York, July 5 - General Motors Corp. bonds, and those of its General Motors Acceptance Corp. financing subsidiary, were seen easier Wednesday as a two-session advance fueled by takeover buzz growing out of investor Kirk Kerkorian's efforts to bring GM into an alliance with carmakers Renault SA and Nissan Motor Co. appeared to have run out of gas. Also helping to stop GM's upside momentum were cautionary comments by France's interior minister to the effect that such a three-way alliance between GM, the French carmaker and Nissan, was by no means a done deal.

In the primary market, not much seemed to be going on, outside of the news that Rexnord Corp. is planning a large two-part offering of eight- and 10-year senior and senior subordinated notes.

Mid-morning a high yield syndicate official marked the broad market "a touch lower," trailing strength seen during the last two sessions of the June 29 to July 2 week.

The source added that in the wake of what had for many market participants been a four-day Independence Day weekend, the ranks remained thinner than normal on Wednesday, with many electing to take the remainder of this week as vacation time.

Following the session's close another high yield syndicate source from a different institution noted a "negative tone" to the broad market, which the source marked down one-quarter of a point - a move related to a sell-off in equities and a back up in Treasury rates.

A trader said "there was very little going on," with GM softer, on what he termed "the rumblings coming out of the French government."

He saw the Detroit giant's benchmark 8 3/8% notes due 2033 off a point at 80 bid, 81 offered. Those bonds had previously firmed several points to the 81 level from the middle 70s after billionaire tycoon Kerkorian, who owns 9.9% of GM, suggested in a regulatory filing that GM seek to enter an alliance with Renault and Nissan, and said those companies might be willing to buy up to 20% of the troubled U.S. carmaker.

The trader cited the impact of remarks made by French interior minister Francois Loos, who cautioned Renault - which is 15% owned by the French government - to exercise "extreme caution" before bringing GM into its alliance with Nissan.

Loos told a French TV channel that such a three-way hookup "is not a done deal, it's an idea."

The fact that the Paris government, as a major Renault shareholder, has the power to block the combination if it chooses, helped to put a damper on the Kerkorian rally in GM bonds that had pretty much dominated what little real activity the junk market secondary had shown over the past two, admittedly, pre-holiday sessions.

That wet blanket on the campfire came amid a background of other developments that seemed to indicate that a linkup between GM and the other carmakers might actually come to pass.

News reports said that GM's board of directors would discuss the Kerkorian idea on a Friday conference call, while other reports - attributing their information to unidentified sources - indicated that GM's chairman and chief executive officer G. Richard "Rick" Wagoner would meet his counterpart at Renault and Nissan, Carlos Ghosn, to discuss the matter face to face. There has been no official confirmation of the latter report. Other news reports speculated that a sizable investment by Renault and Nissan might give Kerkorian the leverage to force Wagoner out and put Ghosn at the top of the company, in hopes that he might be able to repeat the miracle turnaround he produced several years ago at Nissan.

Kerkorian, whose Tracinda Corp. investment vehicle has a representative on GM's board, former Chrysler executive Gerald York, said in his filing Friday with the Securities and Exchange Commission that the alliance between Renault and Nissan, cemented by their interlocking ownership - Renault owns 44% of Nissan, which in turn owns 15% of Renault, with Ghosn presiding over both - has produced millions of dollars of synergies between the two carmakers. He said that GM, which lost billions of dollars last year and which is wallowing deeply in red ink so far this year, needs to be able to get similar synergies and savings.

Another trader saw the GM benchmark bonds at around 80.25, while GMAC's 7.45% notes due 2031were unchanged at 95.25 bid, 95.75 offered.

Qwest unchanged despite restatement

Elsewhere, there seemed to be little market reaction to Qwest Communications International Inc.'s announcement that it will re-state its quarterly and yearly financial reports dating back to 2000 and including the 2006 first-quarter, due to possible irregularities in the accounting treatment that the Denver-based telecommunications company used for stock option grants.

Qwest's 7 7/8% notes due 2011 were at 101.375 bid, 101.875 offered, while its 7¼% notes, also due 2011, finished at 97.25 bid, 97.75 offered, both unchanged.

Gaming companies steady

The news that Atlantic City's dozen casinos had indeed been shut down in the wake of the New Jersey state budget battle between freshman governor Jon Corzine and the state legislature was seen having little immediate impact on the bonds of the companies that own the gaming palaces, despite the collective loss of millions of dollars of gaming revenues for Wednesday, and the projected loss of additional millions should the stalemate drag on. That budget crisis has forced the shutdown of many Garden State government agencies, including the state Casino Control Commission, which closely regulates the casinos via the daily placement of teams of inspectors at each of the 12 casinos in the seaside gambling resort.

Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were seen little changed around 95.625 bid, while the bonds of Aztar Corp. - which are expected to be taken out as part of its pending acquisition by Columbia Sussex Corp. - were likewise unchanged around their anticipated takeout levels, 104.75 for its 9% notes due 2011 and 106 for its 7 7/8% notes due 2014. Resorts International Hotel & Casino Inc.'s 11½% notes due 2009 were stable around 108.

A trader at one desk saw the Trump bonds half a point lower at 95 bid, 96 offered and saw all of the other casino bonds - also including those of Boyd Gaming Corp., MGM Mirage and Harrah's Operating Co. Inc. - unchanged.

"Trump is the headline name" in that part of the gaming sector, he said. "Even so, [the price movement] wasn't that big" - although he cautioned that some of the other casino bonds could begin to edge downward "as this thing trails onward."

Gaming analyst Michael Liebman of CIBC World Markets said that if he were a bondholder, "I don't think that I'd be nearly as concerned about any of the companies there, as for Trump," since unlike the city's other operators - who have other properties in other gaming jurisdictions-Trump's operations are solely centered in its three Atlantic City casinos, the Plaza, the Marina and the Taj Mahal.

In contrast, he said, companies like MGM Mirage, Harrah's and Boyd "are diversified enough that there shouldn't be much of an impact at all from a bondholder's perspective.

"The credit quality is strong enough and the cash flow from other markets is more than enough to offset what they're going to lose here" as long as the Jersey casinos are closed.

On top of that, Trump, which went through a restructuring and emerged from Chapter 11 in May 2005, has "pretty significant leverage" - $1.25 billion of bond debt alone, not to mention its bank debt obligations. "Every dollar is important to them" to help them meet those debt obligations.

That having been said, though, he asserted that "investors remain focused on the long-term story there. It's a turnaround, with all of the expansions and refurbishments that they have going on at the various properties. I think the focus remains on 2008, 2009, when those open up."

In the interim, "it's just a matter of how much cash are they going to burn sitting here waiting for an answer" to the state budget crisis.

"What they really should be gearing towards is a resolution [of the problem] before Friday," the analyst said. "Otherwise, you lose out on a peak weekend. It doesn't get much more lucrative than a weekend in the middle of July. So that's something that neither the casino operators nor the state should want to pass up here."

Deluxe down on loss warning

Among the less widely trafficked names, a trader said that Deluxe Corp.'s 5 1/8% notes due 2014 were down three points on the session to 75 bid, 77 offered. He cited the Shoreview, Minn.-based check and commercial printing company's announcement Friday predicting a loss for the second quarter, where earlier it had anticipated a profit, and forecasting full-year earnings less than half of its previous guidance.

After that, "Moody's and S&P weighed in on what was going on in the last couple of days, and that sent the bonds down lower today [Wednesday]," he said.

Standard & Poor's dumped the company's previously investment-grade ratings into junk territory late Friday when it downgraded Deluxe's senior unsecured credit rating a notch to BB+ from BBB- and warned that another downgrade was possible. Moody's said on Wednesday that it was putting its Baa3 senior unsecured rating under review for a possible downgrade, citing the downward guidance revision.

Another market source saw the company's 5% notes due 2012 trading down around 82, well below the 85 area levels the bonds held before the company cut its guidance.

Deluxe said Friday afternoon that it would record a pre-tax impairment charge of approximately $45 million (56 cents per share) in the second quarter related to the abandonment of a software project.

It said that will cause it to show a second-quarter loss of between 9 and 11 cents per share - a sharp comedown from the 52 to 56 cents per share the company had previously projected. Earnings for the year are now expected to be in the range of $1.37 to $1.47 per share - versus earlier guidance of $2.70 to $2.80. Analysts, on average, had been forecasting quarterly earnings of 54 cents per share, and full-year earnings of around $2.69 per share.

Wolverine Tube gives up losses

And one name which seems to have flown under many market-watchers' radar is Wolverine Tube Inc., whose 10½% notes due 2009 have lately been bouncing wildly around in the 80s - albeit mostly on relatively small trades - despite a lack of definitive positive news about the Birmingham, Ala.-based manufacturer of metal tubing for electrical and plumbing uses.

Last week, the bonds had moved up to above 87 bid, after having started out at 80, and they were still quoted at those higher levels on Monday. However, on Wednesday the bonds first retreated to around the mid-80s, and then later in the day, to around the 81 level, on medium-sized trades. No one had a ready explanation for the gyrations.

While the bonds were heading backward, the company's NYSE-traded shares were headed in the opposite direction, rising 25 cents (6.94%) to $3.85, on volume of 160,000 shares, about half the usual turnover. Equity investors reportedly are looking optimistically towards the release of second-quarter earnings, about three weeks from now.

Moderate calendar build-up forecast

In the primary market the news volume was low on Wednesday with word circulating of two roadshow starts.

Milwaukee-based power transmission firm, Rexnord Corp. will begin a roadshow on Thursday for a $840 million two-part notes offering.

The company plans to sell a $420 million tranche of eight-year senior notes (B3/CCC+) and a $420 million tranche of 10-year senior subordinated notes (Caa1/CCC+) in an acquisition financing via Credit Suisse, Merrill Lynch, Bear Stearns and Lehman Brothers.

Elsewhere Avis Finance Co. plc will begin a roadshow next week for its unrated €200 million offering of seven-year floating-rate notes via bookrunners Barclays Capital, The Royal Bank of Scotland, Dresdner Kleinwort and Societe Generale.

The United Kingdom-based a car rental company, which operates in Europe, Africa, the Middle East and Asia, will use the proceeds to refinance maturing debt.

Sell-side sources who spoke on Wednesday maintained what others had said previously, in the run-up to Independence Day: the post-July 4 build-up to the forward calendar is expected to be moderate and gradual.

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