Baldor, Terra deals price; airline issues continue retreat; funds see $73.2 million inflow

By Paul Deckelman, Paul A. Harris and Stephanie N. Rotondo

New York, Jan. 25 - Baldor Electric Co. and Terra Capital Inc. were heard to have successfully priced new issues in Thursday's market, the latter a quickly shopped offering which had only emerged on participants' radar on Wednesday.

Baldor's deal did respectably well when it was freed for aftermarket dealings traders said, but Terra's issue saw little movement.

Elsewhere in the primary sphere, pre-deal market price talk emerged on The Cooper Cos. Inc.'s upcoming issue of eight-year senior notes, and revised talk was heard on an upsized Alion Science & Technology Corp. offering. Pearson Government Services - PGS - was heard getting ready to hit the road next week to market an eight-year bond offering.

In the secondary market, the recently high-flying bonds of the bankrupt Northwest Airlines Corp. were seen continuing to come back down to earth, pulled lower by the company's recent revelations of a greater-than expected level of allowed unsecured claims that it projects for its restructuring. Rival Delta Air Lines Inc., also currently in Chapter 11, was likewise seen lower.

There was little real market response to Ford Motor Co.'s report of a sharply wider fourth-quarter loss, since it was generally expected that the Number-Two domestic carmaker would be sloshing around in red ink up to its hubcaps to end the absolutely worst year in the company's long history.

Traders also said that they didn't see too much movement in the automotive supplier names, which often take their cues from what's going on with the debt of major customers Ford and General Motors Corp.

In general, although this week's JP Morgan high yield bond conference in Florida was over, nobody seemed to be in too much of a hurry to leave those sunny shores and hustle back to Manhattan, where a wind-chill warning of near-zero degrees was declared, or other similarly cold Northern business centers, leaving the market to carry on the last two days of the week with reduced staffing at some places.

Traders said that the market in general seemed to come in pretty much across the board, with investors showing caution in line with the steep declines in both the equity and Treasury markets - stocks suffered their biggest pullback in two months, including the Dow Jones industrials logging a triple-digit plunge, and 10-year Treasury yields ballooning out to their highest levels since last summer.

A high yield syndicate official said that the broad market was down as much as 1/8 point on Thursday.

Funds see fourth inflow

But money has continued to come into the junk market - up until now, anyway. After activity had wound down for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $73.2 million more came into weekly-reporting funds than left them.

That followed the $180.9 million net inflow seen in the previous week, ended Wednesday Jan. 17.

That extends year-to-date inflows among funds that report to AMG on a weekly basis to $542.5 million.

With the year-to-date inflows among funds that report on a monthly basis to AMG now at $798.3 million, the year-to-date aggregate flows - tallying both the weekly and monthly reporters - ended the most recent period at slightly less than $1.251 billion.

That positive note on which the new year has begun, liquidity-wise, with inflows now seen in each of the four weeks since the year's beginning, stands in marked contrast to the way the old year ended, with outflows recorded over the last three weeks of 2006, as well as in 34 out of the year's 52 weeks, against just 18 inflows, for a total net outflow through the period ended on Dec. 27, the final reporting week of the year of $2.998 billion, according to a Prospect News analysis of the figures.

But most of that 2006 outflows took place in the first half of the year, with the year's second half actually seeing a net inflow of $638 million, the analysis indicated, and that positive trend is apparently now carrying over into the new year as well.

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

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - 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, most recently, hedge funds.

Vitro massively upsized

Meanwhile it was a big day in the primary market as three issuers priced four tranches of notes which generated slightly less than $1.863 billion of proceeds.

Two of the four tranches came in the middle of revised price talk while the other two came in the middle of original talk.

Mexican glass-manufacturer Vitro SAB de CV priced Thursday's biggest dollar-denominated junk-rated deal - an upsized $1 billion two-part offering of senior notes (B2/B).

In a Rule 144A transaction that was led by Morgan Stanley, Credit Suisse and Lehman Brothers, the company priced a $300 million tranche of 8 5/8% five-year notes at 99.008 to yield 8 7/8%, on top of price talk which had been tightened from 9%.

Vitro also priced a $700 million tranche of 9 1/8% 10-year notes at 98.40 to yield 9 3/8%, again on top of price talk which had been trimmed from 9½%.

The debt refinancing deal was upsized from $750 million after being earlier increased from an initial $500 million.

A trader told Prospect News that the new Vitro deal traded well in the gray market. And after it broke it traded as high as 101.75 bid. However it finished off the day's highs, closing at 100.625 bid, 101.125 offered.

Baldor prices $550 million

Fort Smith, Ark., manufacturer of industrial electric motors, drives, and generators, Baldor Electric Co., priced a $550 million issue of 10-year senior notes (B3/B) at par to yield 8 5/8%, in the middle of the 8½% to 8¾% price talk.

BNP Paribas and Lehman Brothers were joint bookrunners for the acquisition financing.

Earlier in the week a buy-side source said the deal was multiple-times oversubscribed.

Terra oversubscribed

Finally, terms emerged Thursday on Terra Capital Inc.'s $330 million issue of 7% 10-year senior notes (B1/BB-), which priced at 99.11 to yield 7 1/8%, in the middle of price talk.

Citigroup ran the books for the debt refinancing.

The issuer is a subsidiary of Terra Industries Inc., a Sioux City, Iowa, producer of nitrogen products and methanol.

An informed source told Prospect News that the deal was oversubscribed, and broke for trading late in the day, hence it was difficult to asses how the new Terra 7% senior notes due 2017 fared in the secondary at Thursday's close.

Week winding down

Three prospective issuers are expected to price junk before the Friday close.

On Thursday The Cooper Cos. Inc. talked a $350 million offering of eight-year senior notes (Ba3/BB-) at a yield of 7% to 7¼%.

Citigroup and Credit Suisse are joint bookrunners.

Elsewhwere Alion Science & Technology Corp. has upsized to $250 million from $200 million its offering of eight-year senior notes (CCC+), an informed source told Prospect News on Thursday.

Meanwhile the company lowered price talk to 10¼% to 10 3/8% from the 10½% area.

Credit Suisse is leading the deal.

Earlier in the week Greif Inc. talked its $300 million offering of 10-year senior notes (Ba2/BB-) at 6 5/8% to 6 ¾%.

Deutsche Bank Securities is the bookrunner.

New Baldor Electric powers upward

When the new Baldor Electric 8 5/8% notes due 2017 were freed for secondary dealings, they quickly moved up to 101.75 bid, 102.25 offered from their par issue price, a trader said.

"Those Baldor bonds broke well and did decently," said another trader, who saw them going out at 101.5 bid, 102.5 offered.

However, the same could not really be said for the new Terra Capital 7% notes due 2017, which had priced at 99.11. A trader saw them trade into a 99.25 bid on the break, and saw them leaving in a 99-99.75 context.

But other new bonds continued to hang in at their previous levels, such as the new Sbarro Inc. 10 3/8% notes due 2015, which priced Wednesday at par and then moved up to 102 bid, 102.5 offered by the close. In Thursday's action, a trader saw the Long Island-based Italian-style restaurateur's new notes get as good as 102.75 bid, before coming off that high to end essentially unchanged on the day.

Other issues that priced Wednesday, including MasTec Inc., Allis-Chalmers Energy Inc. and Affinion Group Inc., essentially held their own and stayed more or less where they had been, even in the face of a somewhat easier market environment.

One trader noted that "new issues still traded pretty well," with the Tube City IMS Corp. 9¾% senior subordinated notes due 2015, which priced at par a week ago and then moved up to 102.5 bid, 102.75 offered after being freed, and hanging in at those levels subsequently, had moved up to 103 bid, 103.5 offered by Thursday afternoon.

He likewise saw Freescale Semiconductor - which had priced $5.95 billion of new bonds in four tranches in mid-November, all pricing at par - better on the session at 100.5 bid, 101 for each of the tranches, about ½ point higher on the day.

"You would think [that the bonds would struggle] because the whole sector was downgraded [last week in response to weakness in Intel Corp. earnings], but the paper remains firm. At one point, in morning trading, he saw the paper even better at 101.25 bid, 101.5 offered, "but towards the afternoon, the paper came in a little bit."

Market pulls in its horns

Overall, the trader said, "the market started to come in at the end of the day," following the lead of Treasuries and the stock market.

"There's still a lot of money on the sidelines," he said, "still a lot of bids and buy interest in the market. They just didn't chase them today [Thursday]. For the first time in a long time, they kind of backed off a little bit - the whole market was a little bit softer, probably led by auto parts in particular."

This he said was in response to the poor numbers posted by Ford, a major customer for the auto supplier companies, but he added that the easing was "no great shakes."

Ford loss has little bond impact

Ford reported a fourth-quarter loss of $5.8 billion ($3.05 per share) - sharply wider than the $74 million loss (four cents per share) seen a year earlier.

Overall for the year, the venerable carmaker lost a whopping $12.7 billion - the most in its 103-year history.

Ford warned that it will bleed cash for two more years, 2007 and 2008, before it even has a shot at returning to profitability in 2009.

The Detroit giant's cash needs will be giant-sized during that time - it expects to burn up $10 billion in cash to run its business through 2009.

But Ford's big loss and gloomy projections were pretty much expected, traders said, and had little or no impact on its bonds. One quoted the 7.45% notes due 2031 about unchanged at 81.75 bid, 82.75 offered, while another trader said that "surprisingly," they were actually up 1/4, at 82 bid, 82.5. offered.

He saw GM's benchmark 8 3/8% notes due 2033 off 3/8 point at 95.25 bid, 95.625 offered.

The world's largest carmaker announced after the market had closed that although it expects to make a net profit in the fourth quarter - its first such quarterly gain in two years - it will have to delay reporting its 2006 financial results because of accounting errors and other issues.

GM said that it found tax accounting mistakes from before 2002 that will end up increasing its retained earnings for all subsequent years by anywhere from $450 million to $600 million.

News of the delayed results came too late to affect Thursday's trading in the bonds, although it could have some impact on Friday.

Suppliers quiet

With Ford unchanged to up and GM down slightly, most traders said that there was little happening in the bonds of auto suppliers.

Former Ford unit Visteon Corp.'s 8¼% notes were around par, which a trader called unchanged.

He did see former GM subsidiary Delphi Corp.'s bonds down a point but added "so what? So their [6.55% notes due 2006 ] are 110 instead of 111. Big deal."

Airlines continue to lose altitude

The major mover in the market, again, was the distressed airline sector, particularly Northwest and Delta. There was no fresh major news out on either company, but their bonds moved lower, continuing the negative momentum seen over the past few sessions.

The airlines were down "a good bit," with Delta's 8.30% notes off 2 points at 61, and Northwest's bonds down 4 points into the low 90s.

Another trader noted that Northwest's 10% notes due 2009 fell to 95.25 bid, 96.25 offered from 99.25 bid, 100.25 offered Wednesday - and well down from 105 "just the other day."

Northwest revealed Tuesday that it estimates that anywhere from $8.8 billion to $9.5 billion in unsecured claims could be allowed in its bankruptcy case. The company also reiterated that shareholders would not receive any recovery under the terms of the company's recently filed plan of reorganization.

It was "not a good day or week" for them, the trader added.

Elsewhere, outside of the autosphere, a trader saw Solo Cup Co.'s 8½% notes down a point at 88 bid, 89 offered. Another saw them off 2 points at 87.5 bid, 88 offered, but said there was "no news on them. I can't imagine why they fell."

Still a firm tone

Overall, though, a trader said, "there's been a lot of chatter [in the financial media] by a lot of people, saying that junk bonds are overvalued, and defaults are going to rise, blah, blah, blah." He described such talk as "the same stuff that we were discussing eight months ago, that I disagreed with then. The market continues to trade pretty well."

Noting that the media stories have quoted supposed "wise men" in the market expressing bearish views, the trader scoffed that "they're supposed to be wise - but they haven't been too wise in the last couple of years."

However, he said "even a broken clock is right twice a day, so at some point they're going to be right - but I think the bias is there's still a firm tone to the market."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.