GM rebounds on numbers, other autos up also; Dimon, Hughes, Cheniere deals spiked

By Paul Deckelman and Paul A. Harris

New York, April 19 - General Motors Corp. announced Tuesday that it had lost over $1 billion in the latest quarter - but since that huge loss had been expected and was already priced in, the giant automaker's bonds came off their lows to actually finish up a little on the session, traders said.

The fact that GM's red ink was not worse than anticipated also gave a badly needed boost to the battered and beleaguered bonds of the high-yield automotive supplier sector, with the most volatile name - Collins & Aikman Products Co. - showing the strongest bounce.

In general, traders said, the junk market secondary had a pretty good day, helped by the relatively rare favorable news out of autoland, as well as gains in the Treasury and equity markets.

In the primary market Brown Shoe Co., Inc. completed a $150 million transaction at the wide end of original talk, playing to a book that was two-times oversubscribed. The notes, which a source said noticeably benefited from the BB- rating from Standard & Poor's, traded up in the aftermarket.

And Scottish information and communication technology firm Damovo III SA completed its €350 million two-part deal on top of revised talk.

However three prospective issuers pulled up stakes on Tuesday, citing current market conditions. Two withdrew to the wings to wait for better conditions, while the third abandoned high yield altogether and headed for the bank loan market.

What's good for General Motors...

A buy-side source speaking to Prospect News on background at mid-afternoon Tuesday said that a better-feeling junk bond market had much to do with GM's earnings call.

"The market is up a good quarter of a point today in a much better tone, with a little better two-way trading," the investor said.

"How much of that is a reaction to Treasuries being up a little over a half is hard to say.

"It looked like GM did slightly better, spread-wise, after the call. That helped the tone.

"And I think the good equity market is causing the high yield to feel a little better."

This investor, who was in the book for Brown Shoe, correctly predicted that the deal would get done.

The buy-sider also predicts that Gardner Denver, which is in the market with $125 million of eight-year senior subordinated notes (B), via Bear Stearns and JP Morgan, will complete its transaction.

"The door is open for better credits," the buy-sider asserted.

As to the correction now underway in the high-yield market, the buy-sider said that it is attributable to various forces.

"Half of this correction is due to what Treasuries are doing, and the Fed tightening," the investor said.

"And GM and Ford play a big part in setting the tone because they are such potential overhangs in the market.

"Finally it's attributable to what has happened to fund flows: if money flows out you sell, and if money flows in you might buy.

"The outflows seem to me to reflect the sentiment on what the Fed is going to do, and they also reflect higher Treasury rates, because after the last Fed move - increasing the rate by 25 basis points - the outflows really started to diminish.

"That tells me that a lot of it is nervous, interest rate-sensitive money."

Finally, with regard to the possibility - some say "probability" - that GM's debt will get downgraded to junk, this investor did not seem alarmed.

"Some people think that a fair amount of the mandatory sells have been done," the buy-sider said. "Somebody anticipated that 15% might be mandatory sells.

"But why are the spreads going wider?" the source asked rhetorically. "Somebody has to be selling already. So the market has made some adjustment.

"And I think everyone is taking comfort from the amount of liquidity on GM's books. It does not seem as thought there is going to be some liquidity event that would precipitate a bankruptcy filing."

Brown Shoe 2-times oversubscribed

One positive sign in the primary market Tuesday was the successful completion of the Brown Shoe deal.

One source close to the transaction specified that the deal had neither been postponed nor restructured, nor had the price talk been revised.

The St. Louis company priced $150 million of seven-year senior notes (B1/BB-) at par to yield 8¾%, on the wide end of the original 8½% to 8¾% price talk.

Banc of America Securities laced up the acquisition deal for Brown Shoe.

One source close to the transaction said that the order book was two-times oversubscribed. Another added that the deal had noticeably benefited from the BB- rating from Standard & Poor's, as high yield investors have lately taken to seeking out higher quality credits.

When the new Brown Shoe 8¾% senior notes due 2012 were freed for secondary dealings, they were seen having firmed slightly to 100.5 bid, 101 offered.

Damovo on top of revised talk

Elsewhere Tuesday Damovo III SA priced €350 million of seven-year senior secured notes (B1/CCC+) in fixed-rate and floating-rate tranches.

The Glasgow, Scotland, information and communication technology firm sold €218 million face amount of 10¼% senior secured fixed-rate notes at 96.389 to yield 11%.

The price talk, for a 10¼% coupon at a discount to yield 11%, was revised Tuesday from 9¾% to 10%.

The company also priced a €140 million issue of senior secured floating-rate notes at par to yield three-month Euribor plus 800 basis points.

The price talk, Euribor plus 800 basis points, was revised Tuesday from Euribor plus 775 to 800 basis points.

Deutsche Bank Securities ran the books for the debt refinancing deal.

Three pulled deals

Elsewhere on Tuesday three companies that were in the market with junk bond deals either stepped aside or walked away.

Cheniere Energy postponed its $500 million offering of 10-year senior notes (B3/B+) due to market conditions.

Also Dimon Inc. (Alliance One International Inc.) postponed its $650 million three-part bond offering, citing adverse conditions in the high-yield debt market.

Primary market sources expressed the expectation that Cheniere and Dimon would actually head for the high-yield waiting room - awaiting improved market conditions - and there join Sirius Satellite Radio Inc. ($250 million) and Dacom Corp. ($300 million), both of which are thought to be circling on the horizon at present.

Finally on Tuesday, Hughes Network Systems LLC cited market conditions as it withdrew its $325 million offering of eight-year senior notes, opting instead to shift its financing to the bank loan market.

Talk on NewPage's $900 million

Price talk emerged Tuesday on NewPage Corp.'s restructured $900 million offering of high-yield notes, which is expected to price on Thursday.

The company shifted $50 million to the secured tranches from the subordinated tranche.

A $350 million tranche of eight-year non-call-four senior subordinated notes (Caa2/CCC+) is talked at 11 3/8% to 11 5/8%. The tranche was decreased from $400 million.

Meanwhile the company increased its two secured tranches (B3/CCC+) to $550 million from $500 million. Tranche sizes remain to be determined.

Talk is three-month Libor plus 550 basis points on the seven-year non-call-two second-lien senior secured floating-rate notes.

And talk is 9 3/8% to 9 5/8% on the seven-year non-call-four second-lien senior secured fixed rate notes.

Goldman Sachs & Co. has the physical books for the acquisition deal.

Triad deal heads for the road

One roadshow start was heard Tuesday.

Triad Acquisition Corp. (Triad Financial) will begin a roadshow on Wednesday for its $200 million offering of eight-year non-call-four senior notes, via Goldman Sachs.

Proceeds will be used to help fund the buyout of Triad Financial by Goldman Sachs Capital Partners, Hunters Glen and GTCR Golder Rauner from Ford Motor Co.

Elsewhere James River Coal Co. was heard to be measuring the market.

The company is expected to launch a $135 million registered offering of 10-year non-call-five senior notes during the week of April 25, pending market conditions.

Morgan Stanley will run the books for the debt refinancing and acquisition deal from the Richmond, Va.-based coal producer.

GM active, up slightly

Back among the existing bonds, General Motors was the name on the lips of many, as the world's largest carmaker reported one of the largest quarterly losses in its history, $1.1 billion, chiefly due to escalating healthcare costs and continued weak vehicle sales in its core North American operations.

Even as it wallowed in red ink, however, GM touted its strong liquidity position of nearly $20 billion as of the end of the quarter (see related story elsewhere in this issue).

GM's bonds - which are nominally still investment grade, but which have been trading at deeply distressed levels, at least on the long end of the curve - "were up in the morning, first thing, before the numbers," a trader said, and then they were down after the numbers, and then there was an S&P comment about not necessarily cutting them to junk in the near future [from their current barely investment-grade BBB- rating], and they rallied back and the stock came back, pretty much all the way. So, I guess strength in the market in general brought them back."

The trader saw GM's widely quoted 8 3/8% notes due 2033 ending up half a point at 76 bid, 78 offered.

GM, another trader said, "was actually trading better last night and this [Tuesday] morning before the numbers came out, estimating that they were anywhere from 20 to 30 basis points tighter than the levels they held after the numbers came out.

"After the numbers, we traded back toward the lows where things had been trading." He saw the 8 3/8s trade as low as 74 bid, 76 offered, before coming back to 75 bid, 77 offered, "so they did do a little better on the day."

GM's 6¾% notes due 2014, he said, were quoted at bid levels of 600 basis points over comparable Treasuries, and offered levels 580 basis points over, but then the bid improved to 565 bps during the day, going home at 565/555.

"It seems like they have found a floor here - people coming in and buying them when they get down around that 700 [bps over] level, and they seem to tighten back up. But it still feels a little heavy out there."

He noted that GM's bonds were being quoted both on a spread-over-Treasuries basis and a dollar price, depending on what shop was doing the quoting, and what bond was being quoted.

"The '33s - the big long benchmark - I'm seeing more quoted in dollars. The shorter stuff, I still see quoted on spread," although he said "the really short stuff," like the 6 1/8% notes due 2006, was also being quoted in dollars, around 98.5 bid.

The trader continued that "as the stuff starts to get quoted in dollars," it's attracting more interest from the traditional high yield community, which used to consider GM bonds as simply out of their league.

"There's a floor here, until another event happens - maybe a ratings event - and then the floor will drop out from under it. But you can see it back at these levels weeks after that, after everybody who has to sell has sold, and the high yield guys come in and buy it."

More and more high-yield investors "are starting to pay attention to it. They view [GM tumbling down to junk] as an inevitability, but they're going to wait till it happens, because there will be a certain group of people who will have to sell."

Even at this late date, though, with all of the major agencies grading GM's bonds just a step away from junk, he said "a good portion" of such investment-grade holders as held GM before are still holding it.

"I think what they've done is they've reduced their exposure, if they're smart. I think some of them will stay in the shorter end, they'll make a case for it. But I think there are still people in it - that aren't going to be able to be in it."

Two out of the three major agencies will have to downgrade GM to junk "before certain people will be forced to liquidate it, and right now, that's not the case."

Auto sector gets a lift

GM's no-worse-than-expected results seemed to also help steer the bonds of other automotive-related companies higher. Collins & Aikman's issues, for instance, "were up a couple of points," a trader said, quoting the Troy, Mich.-based automotive components company's 10¾% senior notes due 2011 as having risen to 77 bid, 78 offered, from prior levels at 75.5 bid, 76.5 offered, while Collins & Aikman's 12 7/8% subordinated notes due 2012 were two points better at 39 bid, 40 offered.

Another trader saw those same bonds up only about a point, at 76 bid, 78 offered, and 38 bid, 40 offered, respectively.

Other auto-related names heading back up Tuesday included TRW Automotive, whose 9 3/8% notes due 2013 were up better than a point, around the 106 level, and Dura Automotive Systems Inc., whose Dura Operating Corp. 9% notes due 2009 were a point better at 75. "Most of the auto names bounced up a point or so," a trader said.

Lucent up on earnings

Apart from the autos, Lucent Technologies Inc.'s bonds were helped by good quarterly numbers from the Murray Hill, N.J.-based telecommunications equipment maker. Its 6.45% notes due 2029 were seen up two points to 86 bid, 87 offered.

Charter rises

Charter Communications Inc.'s debt was seen better bid on the day, with the St. Louis-based cable operator's 8 5/8% notes having moved up to 76.5 bid, 77.5 offered from prior levels around 74 bid, 75 offered.

A trader - who called the Charter gain "a pretty notable move" - said there had been no fresh positive news seen out about the company that might explain the rise, other than "cables were strong and the market was just better."

Market generally firm

Another trader said that overall, "not much has been going on lately - but the market has woken up from its sleep the past week or so. It was a little firmer today. There was a little more activity, and relief after GM's numbers came in that they weren't worse than expected."

Treasuries, he said, "certainly had a good rebound today, up a half, or three-quarters [of a point] off their lows, so any spread-related product did better. Most of the auto paper bounced up, about a point or so, and that kind of made everything else feel good."

Overall, the market, the first trader said, "was firm, with Treasuries up today, and the equity markets finally posting a positive day, and GM bouncing back. I think that really helped the market stay afloat, and it definitely caught a bid."

The trader noted - tongue in cheek - that some people on the desk were joking that the market got the benefit of a "Pope rally," on the news out of Rome that a new pontiff had been elected.

But getting back to basic market dynamics, "it was just a positive day overall - it didn't stat out that way, but it did end up that way."

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