Autos firmer as Delphi extends deadline; Bon-Ton Stores shops eight-year deal

By Paul Deckelman and Paul A. Harris

New York, Feb. 17- With time running out on Delphi Corp.'s self-imposed deadline for having its unions agree to large pay and benefits givebacks - and the unions taking a hardline stance and threatening a strike if the company asked the bankruptcy court to void its labor contracts - something had to give. And something did.

Delphi, the bankrupt Troy, Mich.-based automotive electronics manufacturer, said Friday that it would extend through next month its deadline for reaching agreement with its main union and with former parent General Motors Corp. on how the company could cut its burdensome inherited labor costs. That helped push Delphi's bonds up a point or so, and lifted GM and other automotive names as well.

Aside from that, however, things were deadly dull in a junk bond secondary market that closed up shop early (2 p.m. ET) ahead of the three-day Presidents' Day weekend that also saw all debt markets shuttered on Monday.

Sources said that the broad junk bond market closed the Friday session slightly higher on the day.

In the secondary arena, a pair of prospective new issuers were heard to be getting ready to take their deals on the road, both starting Wednesday: Bon-Ton Stores Inc., which is selling an eight-year note issue, and Quebecor World Inc., which is marketing a 10-year offering.

Hence the forward calendar, heading into the holiday-shortened week of Feb. 20, holds an even $1 billion of business thought to be in the market.

A trickle of deals

With no issues pricing Friday the market finished the Feb. 13 week with just $456 million pricing in three dollar-denominated tranches, as issuance continued to dwindle.

The previous week saw $1.76 billion of issuance in seven tranches, whereas the week beginning Jan. 30 saw $4.1 billion in nine tranches.

At Friday's close year-to-date dollar-denominated issuance totaled just over $20.3 billion, a nose ahead of 2005 year-to-date issuance tallied at the Feb. 17 close: $19.8 billion.

However one notable distinction may be drawn in comparing 2006 year-to-date deal volume with that of 2005: thus far in 2006 the market has seen just 48 dollar-denominated tranches price, trailing the 73 tranches that had priced by the Feb. 17, 2005 close by more than 34%.

A slow-to-build calendar

Consistent with market color heard throughout the month of February so far, the new issue calendar saw an extremely modest build-up during the Feb. 13 week.

However the Friday session did produce a pair of prospective issues that took the total of business in the market to $1.0 billion.

Bon-Ton Stores Inc. of York, Pa., will begin a roadshow on Wednesday for its $525 million offering of eight-year senior notes (B2/B-).

Banc of America Securities and Citigroup are joint bookrunners for the acquisition financing.

Also Montreal commercial printer Quebecor World Inc. will begin a roadshow Wednesday for its $300 million offering of 10-year senior notes (existing Ba3/confirmed BB-), a debt-refinancing and general corporate purposes deal via Citigroup.

Those two deals join the previously announced Dave & Busters Inc. $175 million via JP Morgan.

All three deals are expected to price during the week of Feb. 27.

As had been the case throughout the week, sources continued to forecast a slow pace to the build-up of the forward calendar. Some sell-siders claimed to know of one or two deals that could come soon. One source also said that at least one drive-by deal would likely come during the Feb. 20 week.

Aside from that drive-by, at Friday's close no issues were scheduled to price during the week beginning Feb. 20.

Also worth mentioning, perhaps, is the fact that sources Friday claimed to be unimpressed with the $116.3 million outflow from the high-yield mutual funds for the week to Feb. 15, as reported by AMG Data Services.

Despite the fact that the funds have seen $529 million of year-to-date net outflows among those funds that report on a weekly basis there remains cash to put to work in high yield, sources say.

Steinway up in trading

Secondary traders saw the new 7% senior notes due 2014 priced Thursday by Steinway Musical Instruments Inc. hitting all the right notes in aftermarket activity Friday. Those bonds, which priced at 99.2435, "went well," a trader said, "very well bid-for" at 100.75 bid, 101 offered.

Another trader, who also saw the new Steinways at that level, said that Wind Acquisition Finance's new euro- and dollar-denominated add-on notes also seemed to have the breeze at their backs, filling their sails; he saw the 9¾% euro-denominated notes due 2015 at 106.875 bid, 107.25 offered, up from Wednesday's 106 issue price, while the dollar-denominated 10¾% notes due 2015, which had priced Wednesday at 105, had firmed smartly to 106.5 bid, 106.75 offered.

Delphi rises on deadline delay

Back among the established issues, Delphi "was bouncing around all over," a trader said, who saw those bonds - which have been languishing in the lower 50s - get over 55 bid, before coming off that high to close at 54 bid, 55 offered, which he described as "up a point or so."

Another trader saw the Delphis jump as high as 56 bid, from opening levels at 53 bid, 55 offered, but then said that the bonds came off that peak and gave up most of its gains, at 54 bid, 55 offered.

At another shop, the gains were seen even smaller, with a trader pegging the 6.55% notes due 2006 half a point higher at 54.25 bid, 54.75 offered, and the 7 1/8% notes due 2029 at 55.25 bid, 55.75 offered, which he saw as up ¾ on the day.

Yet another trader, though, pronounced a two-point gain on the session for the 7 1/8s, which he saw ending at 55.5 bid, 56.5 offered.

Delphi's bonds firmed after the embattled company announced that it had extended the deadline by which it wants to have an agreement with GM and the United Auto Workers union to March 30.

It was the second time that Delphi had backed off on a threat to seek to have its labor contracts covering 34,000 hourly workers voided. The company, which filed for Chapter 11 protection in October, had originally said it would seek to throw out those contracts in January, but then pushed that deadline off until Friday. Now it has given the process another six weeks, in hopes of coming up with some kind of consensual agreement.

The UAW, which represents about 24,000 Delphi workers, had threatened a strike if Delphi moved to junk the contracts, and several smaller unions, representing the rest of the employees, had gone along with that.

Delphi, which was spun off from GM in 1999 and which inherited high-cost automaker-style contracts far more costly than contracts its peers in the automotive supplier industry have, is hoping for help its former parent, perhaps in the form of an arrangement with giant carmaker not unlike the one that GM's arch-rival Ford Motor Co. reached last year with its former unit, Visteon Corp., which probably thus avoided a likely bankruptcy filing when Ford agreed to take 23 high-cost, unprofitable U.S. factories off the Van Buren Township, Mich.-based parts maker.

Delphi says its U.S. hourly workers made some $75 an hour in wages and benefits in 2005, which puts its costs far above those of other suppliers, even those having contracts with the UAW and other unions. Delphi has asked the UAW to OK cutting the workers' pay and benefits by as much as 60% - a request the union turned down flat when Delphi made it, and which it continues to vehemently reject.

A strike would have disastrous consequences for Delphi and would also seriously disrupt production at GM - Delphi's single biggest customer, with Delphi in turn GM's single biggest parts supplier. How much GM can help Delphi is open to question, though, since GM itself lost over $8 billion last year, and has embarked on its own efforts to scale back its North American operations and reduce its own labor costs.

GM rises on Delphi news

But the respite from the prospect of an immediate confrontation between Delphi and the UAW that could end in a strike helped GM's bonds Friday, a trader seeing its benchmark 8 3/8% notes due 2033 half a point better at 73 bid, 73.5 offered, while the 8% notes due 2031 of the carmaker's General Motors Acceptance Corp. financing unit were a quarter-point better at 96.25 bid, 96.75 offered.

Ford's flagship 7.45% notes due 2031 were meantime at 73.25 bid, 73.75 offered, ¼ point better, as were its Ford Motor Credit Co. 7% notes due 2013, which edged up to 90.25 bid, 91 offered.

Other suppliers edge higher

Among other parts suppliers, Visteon's 8¼% notes due 2010 were seen up ¾ point at 84 bid, 84.75 offered. The trader saw Dana Corp.'s 5.85% notes due 2014 unchanged at 66.75 bid, 67.75 offered, while Lear Corp.'s 5¾% notes due 2014 were a point better at 80 bid, 81 offered.

Another trader, who saw the bonds of the other non-Delphi suppliers "up modestly," estimated that Visteon's 81/4s were a point better at 84 bid, 85 offered, while ArvinMeritor Inc.'s 8¾% notes due 2012 were half a point better at 98.5 bid, 99.5 offered.

He meantime saw the GM bonds at the same 73 bid, 74 offered level as others in the market, but called them 1½ points better on the day.

Revlon steady

Apart from the autos, "not much was going on," a trader said. "People did what they had to do in the morning, and then left."

There was, for instance, little movement in Revlon Consumer Products Corp.'s 8 5/8% notes due 2008, despite the news that the company's corporate parent, New York beauty-care products maker Revlon Inc., had reached agreement with its bank lenders on certain amendments to its bank credit line. The company also reached agreement with its principal owner, billionaire financier Ronald O. Perelman, on extending a separate $87 million credit line his wholly owned MacAndrews & Forbes has extended to Revlon, and extending through June an arrangement MacAndews & Forbes has with Revlon to backstop its coming $75 million equity offering. Revlon also announced its terms on a separate $110 million rights offering.

"Those developments were pretty much expected," a trader said, seeing the 8 5/8s unchanged at 98.5 bid, 99 offered.

Paper names rise

The trader did see a little bit of scattered activity elsewhere, such as in the paper and packaging sector. He said Bowater Inc.'s 6½% notes due 2013 were a point better, albeit in pretty quiet trading, to end at 91 bid, 92 offered, and were up two points on the week.

Rival papermaker Abitibi-Consolidated Inc.'s 8 3/8% notes due 2015 were at 94.5 bid, 95.5 offered, up a point on the day, and Graphic Packaging's 9½% notes due 2013 were also a point better at 93.5 bid, 94.5 offered. He saw struggling Canadian papermaker Tembec Industries' 8 5/8% notes at 53 bid, 54 offered, quoted a point better, but with "virtually no trading,"

In the power generating sphere, the trader saw Mirant Corp.'s 8.30% notes due 2011 up a point at 103.75 bid, 104.75, citing reports that the Atlanta-based energy company, which recently emerged from bankruptcy, is looking to sell its Philippine operations. Published reports Friday said that it has hired Credit Suisse to help it explore its options.

Calpine Corp. "has been inching up," he said, with the bankrupt San Jose, Calif.-based power generator's 8½% notes due 2011 at 32 bid, 33 offered, up a point on the session and up three points on the week.

Sierra Pacific Resources' bonds were not seen trading around on Friday, even though the Reno, Nev.-based utility holding company reported what it termed strong operating earnings - despite lower net earnings from a year ago. Company executives also told analysts on their conference call that the company had made progress in eliminating debt last year, and is still aiming at a goal of restoring its operating subsidiaries to investment-grade status (see related story elsewhere in this issue).

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