Auto supplier bonds continue slide; Enterprise Products brings add-on deal

By Paul Deckelman and Paul A. Harris

New York, Aug. 22 - Bonds of automotive supplier companies were once again being towed lower on Tuesday, continuing to decline in the wake of Friday's big announcement by Ford Motor Co. of coming output cuts and Monday's warning from Standard & Poor's that Ford's move could harm the finances of a number of supplier companies.

Apart from the autos, there was some news in the bonds of hospital operators, as HCA Inc.'s big planned leveraged buyout deal got a green light from the Federal Trade Commission - and while the Nashville-based industry giant's own bonds were firmer on the session, those of such competitors as Tenet Healthcare Corp. and Triad Hospitals Inc. were easier on the session.

In the primary arena, where the forward calendar is being more or less officially assembled as "September business," Enterprise Products Partners LP managed to sneak in with a quickly appearing, opportunistically priced add-on offering - a deal which was upsized from the amount originally talked around the market.

Back in the secondary realm, "the auto names got crushed again today," a trader declared, noting for instance, that Metaldyne Corp.'s 11% subordinated notes due 2012 fell to 76 bid, 76.5 offered from Monday's levels around 78 bid, 79 offered, while its 10% senior notes due 2013 were at 93.75 bid, 94.75 offered - a fall off from Monday's closing levels above 95, although they were up from their lows around 92-94.

The Plymouth, Mich.-based automotive metal forming company was one of eight automotive parts suppliers singled out on Monday by Standard & Poor's, which put them on CreditWatch for possible ratings downgrades, saying those companies' exposure to troubled Ford could impact badly their cash flow and liquidity, now that the Number-Two domestic carmaker has slated big output cuts in the third and fourth quarters. Others on the S&P hit list included former Ford unit Visteon Corp., as well as Hayes Lemmerz International Inc., Cooper-Standard Automotive Inc. and Mark IV Industries Inc.

The trader said Metaldyne's inclusion on the list was "a little odd," since its biggest customer is not Ford but DaimlerChrysler AG, which accounts for over 25% of the company's sales - but he acknowledged that Metaldyne, which makes metal component parts for engines, transmissions, suspensions, axles and drivelines, does have some Ford exposure and is heavily levered - a combination which makes it ripe for a ratings downgrade.

Among other auto names which that trader saw spinning their wheels were Tower Automotive Inc., as the bankrupt Novi, Mich.-based vehicular frame maker's RJ Tower 12% notes due 2013 "got clocked," falling to 38.25 bid, 39 offered, from prior levels at 42 bid 44 offered, and Dura Automotive Systems Inc., whose Dura Operating Corp. 8 5/8% senior notes due 2012 fell to 73.75 bid, 74.75 offered from prior levels above 75, while its 9% subordinated notes due 2009 slipped to 16 bid, 16.5 offered from around 17.5.

"That's where a lot of the action was," he said. "Most of the activity was really confined to the auto parts guys. It's interesting how Ford has become the driver [of the automotive sector] instead of GM [General Motors Corp.] now. They're the ones you now have to watch for, falling out of bed."

A market source at another desk saw Visteon's 7% notes due 2014 a point lower at 88 bid, although the Van Buren Township, Mich.-based former Ford parts unit's 8¼% notes due 2010 were only slightly easier at 97 bid.

The source saw Ford's own 7.45% notes due 2031 a point lower at 75.75, while arch-rival GM's benchmark 8 3/8% notes due 2033 dipped just ¼ point to 82.75.

Another trader saw the GM bonds unchanged at those levels, and quoted the top carmaker's General Motors Acceptance Corp. financing unit's 8% notes due 2031 up ½ point at 99.75 bid, 100.25 offered. He saw the Ford 7.45s actually up a quarter point, at 76 bid, 76.5 offered, while the latter's Ford Motor Credit Co. finance unit's 7% notes due 2013 were unchanged at 90 bid, 90.5 offered.

That trader also saw the Metaldyne bonds down about 2 points on the day, Tower down 3 and both Dura issues off a point, and also saw bankrupt Toledo, Ohio-based auto parts manufacturer Dana Corp.'s 6½% notes due 2008 down at least 2 points at 80.25 bid, 81.25 offered, while Dana's 5.85% notes due 2015 lost 1½ points to 71 bid, 72 offered.

Other car parts makers seen easier included Lear Corp., whose 5¾% notes due 2014 were down ½ point, around 80 bid, and Tenneco Inc., whose 10¼% notes due 2013 were seen around the 109 level, also down ½ point.

Goodyear Tire & Rubber Co.'s 9% notes due 2015 were down nearly a full point at 97.5. But American Axle & Manufacturing Inc.'s 5¼% notes due 2014 bucked the negative trend to gain ½ point and finish at 82.5.

HCA healthier, rivals lag

Outside of the autosphere, a trader saw HCA's bonds "start stronger" and finish up about ½ point on the session "across the board," with the company's 5¾% notes due 2014 at 77.5 bid, while its 6.95% notes due 2012 closed at 87.5. At another desk, the company's 6.30% notes due 2012 were ½ point better at 83.25.

HCA said late Monday that the Federal Trade Commission had completed its review of the company's $33 billion sale to a group of private equity investment firms, and had granted early termination of the waiting period under the Hart-Scott-Rodino antitrust law.

The sale of the company to affiliates of Bain Capital, Kohlberg Kravis Roberts & Co., Merrill Lynch Global Private Equity and HCA founder Dr. Thomas F. Frist, Jr. stands to be the biggest LBO ever, and will be partly funded by the issuance of some $5.7 billion of new junk bonds, most likely in the fourth quarter.

While the HCA paper was robust enough, the bonds of some of its competitors were looking a little anemic Tuesday, with Tenet Healthcare's 6 3/8% notes due 2011 down ½ point at 88 bid, a market source said. Another market source saw the Dallas-based hospital operator's 9 7/8% notes due 2014 half a point down at 97.875, and its 7 3/8% notes due 2013 at 89, also down ½ point.

Plano, Tex.-based hospital operator Triad's 7% notes due 2013 were about ½ point lower at 95.75, and Iasis Healthcare LLC's 8¾% notes due 2014 were likewise off ½ point at 96.5.

XM gains on upgrade

XM Satellite Radio Holdings Inc.'s Nasdaq-traded shares jumped $2.28 (20.28%) to $13.52 on four-times-normal volume of 32 million shares, and the Washington, D.C.-based satellite radio operator's bonds came along for the ride, its 9¾% notes due 2014 pushing up ½ point to 92.75 bid, 93.75 offered.

XM's bonds and shares gained altitude after Bear Stearns & Co. upgraded the stock to "outperform" from "underperform" previously, saying that the recent wave of negative circumstances that have bedeviled the company seems to be subsiding. Analyst Robert Peck now predicts "a positive wave of catalysts."

He also said called XM's latest 2006 subscriber forecast of a total of between 7.7 million and 8.2 million subscribers "achievable."

Toll firm despite weak Q3

Toll Brothers Inc. reported that its third-quarter profit fell 19% from year-ago levels, as higher interest rates depressed new-home sales, causing the Horsham, Pa.-based builder of luxury homes to cut its earnings estimate for the full year - a signal that it doesn't expect the housing market to stabilize soon.

But a trader noted that the company's 6 7/8% notes due 2012 traded in size around 100.75, up somewhat from recent levels at 100.125.

"The profit slumped," he acknowledged, "but it was better than expected. They beat [analysts' expectations of per-share earnings] by three cents. So, on a bottom-line basis, the stock guys liked it" - Toll's New York Stock Exchange-traded shares actually rose 43 cents (1.74%) to end at $25.20 - "and I guess the bond guys liked it, though ever so slightly, because they matched or beat the numbers, and [the bonds] seemed like they were up a little bit, like a half a point."

Enterprise prices deal

A high yield syndicate official marked the broad market unchanged on extremely light activity on Tuesday, and commented that many market participants are presently away.

In the primary market one junk-rated issue was priced in a transaction that took place on the high-grade syndicate desk.

Enterprise Products Partners LP priced an upsized $200 million add-on to its 8 3/8% fixed-rate to floating-rate junior subordinated notes due Aug. 1, 2066 (Ba1/B+/BB+) at a 310 basis points spread to Treasuries, where it had been launched.

Wachovia Securities ran the books for the add-on, which was upsized from $150 million, and came at a dollar price of 103.104 resulting in a 7.915% yield to worst.

The notes will pay a fixed coupon until Aug. 1, 2016, after which the coupon will float at Libor plus 370.75 basis points.

The Houston services provider to the oil and gas industries will use the proceeds for future business acquisitions and other general corporate purposes, such as working capital, investments in subsidiaries, the retirement of existing debt and/or the repurchase of common units or other securities.

The original $300 million issue priced at par on July 13, 2006, so the issuer realized interest savings of close to half a percent in Tuesday's transaction, following which the issue size stood at $500 million.

Primary in limbo

A market source, conceding that limbo may no longer be a destination on the liturgical map, nevertheless insisted that the high-yield primary market is presently "in limbo," and added that little to no new issue activity is expected during the seven-and-a-half sessions that remain until the three-day Labor Day break.

Labor Day serves as a traditional summer-fall boundary marker in the junk market. And sources on both the buy-side and the sell-side are anticipating a dramatic build-up of the new issue calendar when high yield players return to their stations in early September.

Late Tuesday a high yield syndicate official, who had no new names to add to the slowly building list of likely September deals, reiterated an estimate that $25 billion to $30 billion of issuance could price by the end of 2006.

And there is plenty of cash to be put to work in junk, the source added.

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