GM bank debt, bonds speed upward on Kerkorian news; Tembec higher

By Paul Deckelman and Sara Rosenberg

New York, June 30- General Motors Corp.'s revolver got a nice lift on Friday on news of Tracinda Corp.'s proposition that GM join an alliance with Renault SA and Nissan Motor Co., Ltd., traders in the bank loan market said.

It was the same story among junk bond investors, and on the equity side.

The positive news for GM also pushed the bonds of many other automotive names higher, including bankrupt auto parts suppliers like Delphi Corp. - a former GM subsidiary - and Dana Corp.

Outside of the autosphere, things were mostly quiet among distressed bonds, in line with an overall lassitude in the junk market on the last day of the year's first half, ahead of Monday's abbreviated pre-holiday session (2 p.m. ET recommended close), and Tuesday's Independence Day break.

However there was upside movement in the bonds of Tembec Industries Inc. on news reports indicating that the Canadian and United States governments have been making progress towards a final agreement aimed at resolving a long-running trade dispute on softwood lumber tariffs. Broad agreement on the matter had been reached by the two countries in April.

Sources in the bank loan market said that GM's revolver closed out the day higher by half a point at 94.5 bid, 95.5 offered, and had even gotten as high as 95 bid, 96 offered early on in the session.

Over on the bond side of the ledger, "It was all GM, all the time," a trader opined, quoting the carmaker's benchmark 8 3/8% notes due 2033 at 80 bid, 80.625 offered, which he said was at least 3½ points higher. Among the shorter GM issues, he saw the company's 6.85% notes due 2008 1½ point better at 93.75 bid, 94.75 offered.

Another trader saw a more restrained rise in the 8 3/8% GM long bonds to 78.25 bid, 79, which he called up 2½ points. He also saw the bonds of the company's General Motors Acceptance Corp. financial subsidiary 1½ points higher, with GMAC's 8% notes due 2031 trading at 95.25 bid, 95.75 offered.

A market source at another desk called GM's 7 1/8% notes due 2013 up 3½ points at 84 bid, while the 8 3/8s were seen having risen as much as five points to 81.5 bid.

GM's New York Stock Exchange-traded shares jumped $2.35 (8.56%) to $29.79. Volume of 55.3 million shares was more than four times the norm.

On Friday, 9.9% shareholder Tracinda - billionaire investor Kirk Kerkorian's investment company, the third-largest GM shareholder - sent a letter to GM's chairman and chief executive officer, G. Richard "Rick" Wagoner, Jr., proposing that GM establish a committee to immediately and fully explore a possible opportunity to join the partnership-alliance between Renault and Nissan.

"It is our understanding that Renault SA and Nissan Motor Co., Ltd. are receptive to the concept of including General Motors Corp. in their partnership-alliance and purchasing from General Motors a significant minority interest in the company," read the letter, which was filed with the Securities and Exchange Commission.

"The Renault-Nissan partnership-alliance has created tremendous engineering, manufacturing and marketing synergies, resulting in substantial benefits and cost savings to both Renault and Nissan.

"We believe that participating in a global partnership-alliance with Renault and Nissan could enable General Motors to realize substantial synergies and cost savings and thereby greatly benefit the company and enhance shareholder value. Accordingly, we urge the board of directors to form a committee to immediately and fully explore this opportunity together with management," the Tracinda letter concluded.

Even though the Kerkorian news gave the GM bonds a solid boost Friday, one of the traders was not really impressed.

"I don't know," he said, "I have my doubts. I think we may see a little selling in here, because there's a lot of question marks on this thing right now. I heard some people speculating that this [alliance with Renault and Nissan] may not be the best fit.

"But who knows?" he added. "Kerkorian is trying to move the process along, and it kind of keeps Wagoner in the hot seat, that's for sure."

GM helps other auto names

The GM news provided a boost for other automotive bonds. A trader saw GM rival Ford Motor Co.'s 7.45% notes due 2031 up 1¼ points at 71.75 bid, 72.25 offered, while the latter's Ford Motor Credit Co. financing arm's 7% notes due 2013 were ¾ point better at 86 bid. 86.25 offered.

Among the auto parts supplier names, he said, Southfield, Mich.-based interior and seating components maker Lear Corp.'s 5¾% notes due 2014 were ¾ point better at 81.5 bid, 82.5 offered, while its 8.11% notes due 2009 were around half a point better, he said, at 97.25 bid, 97.75 offered.

Even the bankrupt auto parts companies got into the act, with former GM unit Delphi's 6.55% notes due 2006 a point better at 84 bid, 85 offered, while its 6½% notes due 2013 and 7 1/8% notes due 2029 were each seen half a point better at 78 bid, 79 offered.

Bankrupt Toledo, Ohio-based parts maker Dana's 6½% notes due 2008 were unchanged at 84.25 bid, 85.5 offered. Its 5.85% notes due 2015 were ¾ point better at 75.5 bid, 76.5 offered and its 7% notes due 2028 were a point up at 77.5 bid, 78.5 offered.

Bankrupt Novi, Mich.-based vehicle frames maker Tower Automotive Inc.'s 12% notes due 2013, however, were unchanged at 66 bid, 68 offered.

Tembec higher

Apart from the automotive names, Tembec's bonds were seen having moved up solidly, apparently gaining strength on the reports that Canada and the United States - trying to hammer out the details of the broad trade dispute settlement announced in April - have made progress.

A market source saw Tembec's 7¾% notes due 2012 at 51 bid, up from 48.75 previously, while its 8½% notes were two points better at 52.5. Tembec's 8 7/8% notes due 2009 were up a more restrained ¾ point.

Negotiators for the two nations are hoping to have the final agreement hammered out in time for the upcoming week's scheduled meeting between president Bush and his Canadian counterpart, prime minister Stephen Harper. The two leaders are to meet on Thursday in Washington.

The United States and Canada had tentatively agreed in April to end the feud over the $7.4 billion a year trade in softwood lumber, with the United States agreeing to return as much as $4 billion in collected duties back to Canadian companies such as Tembec. The Montreal-based forest products company stands to receive more than C$300 million back from Uncle Sam once the language of the agreement is finally worked out and lumber companies in both countries agree on the terms.

The United States had levied tariffs, starting in 2002, after alleging Canada was subsidizing producers such as Tembec and other companies.

The preliminary agreement the two parties shook hands with in the spring calls for the U.S. government to refund Canadian companies about $4 billion of the more than $5 billion in duties collected over the past four years. Canadian provinces also would face a choice between capping their total exports to the United States and accepting lower duties, or paying taxes of as much as 15% and not facing any cap on their trade.

Tembec's Pink Sheets-traded shares rose sharply to $1.347, up 19 cents (17.32%). Volume was a busy 698,000. Its Toronto Stock-Exchange-traded shares zoomed C$0.20 (14.39%) to C$1.59. Volume of 1.4 million shares was nearly five times the usual daily handle.

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