GM bonds slide, new XM issue holds gains, WaMu takes a tumble; Allis-Chalmers slates 10-year deal

By Paul Deckelman and Paul A. Harris

New York, July 25 - General Motors Corp.'s bonds, and those of other auto-sector credits like GM's 49%-owned auto loan arm GMAC LLC, domestic arch-rival Ford Motor Co., and Ford's credit unit, were all seen down Friday - some by as much as 4 or 5 points - extending the funk into which the automotive names fell on Thursday after Ford reported its worst-ever quarterly loss, much wider than analysts' expectations.

Besides the carmakers themselves, and their financial affiliates, bonds of the companies which supply the OEMs with parts were also generally lower, particularly American Axle & Manufacturing Holdings Inc., after the Detroit-based maker of axles for the truck market - and a major GM supplier - reported a big second-quarter loss, due mostly to the lengthy strike against the company earlier this year by members of the United Auto Workers union.

Apart from the autosphere, traders saw the newly issued bonds of XM Satellite Radio Holdings Inc. continuing to hold at around the higher levels to which they had moved shortly after their pricing Thursday at a severe discount to par. The Washington D.C.-based satellite broadcasting company's existing bonds also held around the near-par levels to which they have moved over the past few sessions on expectations that the Federal Communications Commission will finally greenlight its planned acquisition by smaller competitor Sirius Satellite Radio Inc., under review by the commission for over a year. That long-awaited formal approval for the deal ultimately did come on Friday evening, long after the financial markets had closed.

Merger-mania also gave a boost to the bonds of Huntsman Corp. on the news that it had been approached by additional investors who could help complete the financing for its planned $6.5 billion acquisition by Hexion Specialty Chemicals Inc. - even though Hexion, which previously pulled out of the deal, at least initially seemed underwhelmed by Huntsman's news.

M&A developments were also at play in the strengthening of Baseline Oil & Gas Corp.'s bonds to the par level.

For yet another session, junk players were actively trading the bonds of the nominally investment-grade Washington Mutual Inc., whose bonds and shares were seen notably lower on Friday on rapidly dwindling investor confidence in the continued viability of Seattle-based WaMu, the largest U.S. savings institution.

In the primary market, Allis-Chalmers was heard by syndicate sources to be revving up a planned offering of 10-year notes.

Market indicators remain lower

Looking at the overall market, a trader pegged the widely followed CDX junk bond performance index down ¼ point Friday, quoting it at around 93¼ bid, 93½ offered. Replicating its performance from Thursday, the KDP High Yield Daily Index lost 14 basis points to end at 71.66, while its yield rose by 3 bps to 10.36%.

Several traders said that Friday's activity levels were "very quiet," with many market participants leaving early to take advantage of wonderful weather in New York and other northeastern business centers - typical of a sunny summer Friday.

GM leads autos lower

The market's generally soggy tone was reflected in the fall in the big automotive benchmark bonds, particularly General Motors' 8 3/8% notes due 2033, which were trading in a 55-56 context. While one trader who quoted them at 55 bid, 56 offered saw them only down ½ point on the day, another - noting only the drop between the final round-lot trades on Thursday and Friday and sifting out the numerous smaller trades as not representative - quoted them down almost 4 points on the day at 55.5. A market source at another desk echoed that latter assessment.

Among the shorter-dated issues, GM's 7 1/8% notes due 2013 were seen 2 points lower at 61.

GMAC's 8% bonds due 2031 were little changed around 62 bid. However, its 7¾% notes due 2010 lost more than 2 points to close at 83.

A trader saw Ford's 7.45% bonds due 2031 down 1 point at 53 bid, while another had them at 53 bid, 54 offered, down 1½ points on the session.

Ford's automotive finance division, Ford Motor Credit Co.'s 7% notes due 2013 dropped 2 points to end at 74, while its 7.80% notes due 2012 were down more than 1½ points to the 78 level.

Among the parts suppliers, American Axle & Manufacturing's 5¼% notes due 2014 dipped to 65.625 bid from 66.25 on Thursday, while its 7 7/8% notes due 2017 were seen by a trader at 66.5 - unchanged from Thursday, when there had been no trading in the issue, but down 2 points from Wednesday. The slide followed the company's report of a $644 million second-quarter loss, mostly due to a lengthy strike by the UAW.

Visteon Corp.'s 7% notes due 2014 were down 1 point at 50 bid.

XM holds gains; Sirius deal finally approved

With things generally trending lower, one of the few success stories of the day was the new XM Satellite Radio 13% notes due 2014, which priced on Thursday at a heavily discounted 89.93 in order to yield 16%, but then moved up more than a point on the break and in trading afterwards to above 91 bid. Traders saw those bonds staying around those highs on Friday.

One quoted the new paper at 91.25 bid, 91.75 offered, adding that he'd "heard that it got put away" by the buyers of the deal.

Another trader saw the bonds "pretty much unchanged" from late Thursday's levels at 91.125 bid, 91.625 offered.

The trader also saw XM's existing 9¾% notes due 2014 at 99 in round-lot dealings, which he called unchanged on the day, while Sirius' 9 5/8% notes due 2013 were not traded, left at the 81.5 bid level at which they had traded on Thursday.

The XM bonds had moved up several points to the 99 level over the previous two or three sessions on indications that a deal was being worked out among some of the members of the FCC, that would result in the commission's approving the controversial $3.5 billion merger with rival Sirius on a 3-2 vote split along partisan lines, with the majority Republican members favoring the deal and the minority Democrats opposing it.

There were reports Friday afternoon that bureaucratic wrangling among the GOP commissioners was delaying the approval, just as the finished line was about to be crossed, and that sent both company's shares down. However, all of the i's were finally dotted and the t's crossed, and the commission officially endorsed the merger by the anticipated 3-2 vote on Friday evening - over the objections of conventional radio broadcasters who compete with XM and Sirius, and the scoldings from politicians and consumer advocates who say that creating a monopoly by combining the only two satellite radiocasters works against the public interest.

As part of the price for the FCC's blessing, the two companies agreed to a three-year cap on prices, setting aside 8% of their channel capacity for minority and non-commercial programming and payment of a $19.7 million penalty for past FCC rule violations. They also agreed to make available to consumers radios that receive both Sirius and XM.

Huntsman up on renewed deal interest

Also on the merger-and-acquisitions scene, indications that the planned $6.5 billion acquisition of Salt Lake City-based chemical manufacturer Huntsman by Columbus, Ohio-based Hexion might still happen after all gave the bonds of both companies a boost on Friday.

A trader saw Huntsman's 7 7/8% notes due 2014 at 93, up ½ point, but also saw its 7 3/8% notes due 2015 jump a full 5 points to 93 from Thursday's finish at 88. "Wow," he exclaimed when he tabulated the size of the price change.

Another trader - while allowing that the Huntsman issue "doesn't seem too active" - also called the bonds up 5 points on the day.

Hexion's 9¾% notes due 2014 were up a point at 85.5 bid.

Hexion's planned acquisition of Huntsman had seemed all but dead when Hexion's primary owner, an affiliate of Apollo Management LP, recently declared that the bank financing arranged for the deal a year ago, when the combination was first announced, was now in jeopardy due to Huntsman's current financial condition, notably its increased net debt.

With the deterioration in credit conditions since the early part of last summer, when the deal was announced - at the peak of the private equity boom but before the subprime mortgage crisis soured the whole credit environment - Apollo and Hexion believe that the combined company would be insolvent if the deal proceeded under the agreed terms.

Huntsman disagrees, and went into court to force Hexion to live up to its end of the bargain. Hexion filed its own legal action, seeking to limit its liability should the deal never actually get done. There the matter sat until late Thursday, when Huntsman said that it had been approached by several potential private-equity investors willing to help fund the deal so that it could completed.

"We believe that we can help you secure additional financing and allay your alleged fears regarding solvency or funding," Huntsman said in a letter to Hexion, which was filed with the Securities and Exchange Commission. Huntsman also asked permission to provide confidential information to these potential investors, who were not identified.

However, Hexion is still playing hard-to-get, contending in its answer to Huntsman that it has "no obligation" under the merger agreement to seek any kind of "additional" or "supplemental" financing.

Baseline steady at new higher level

Elsewhere, no fresh activity was seen in Baseline Oil & Gas' 12½% notes due 2012, which were still at the same par bid level to which the Houston-based independent oil and gas exploration and production company's bonds had moved on Thursday, when they rose nearly a point.

That rise followed the company's disclosure in an SEC filing that Third Point Partners LP, a New York-based hedge fund, had converted some $44.65 million of Baseline's 14% convertible notes due 2013 that it held into slightly over 62 million shares, giving Third Point a 64.3% stake in the company. Combined with shares it already owned, as well as those into which it could convert another $4.5 million of the convertible notes it still has, that would give Third Point control of 66.9% of the company's stock, triggering change-of-control provisions in its debt agreements. According to the filing, Baseline has asked its senior lenders for a waiver of the event of default which was technically triggered by the effective change of control of the company.

Third Point's controlling investor, Daniel Loeb, has talked to the company about his desire to place his own nominees on the company's board of directors.

The 12½% bonds had languished for the first half of the year in the upper 80s to lower 90s. After having not been seen trading since the end of April, the bonds began moving up on July 18, coinciding with the first public knowledge that Loeb was maneuvering to gain control of Baseline and remake its board in his own image.

WaMu continues to slide

Junk traders were quoting the nominally investment-grade-rated bonds of Washington Mutual sharply lower, on continued erosion of investor confidence in the big thrift.

A trader said WaMu "had to be the biggest mover," seeing its 7¼% notes due 2017 at 54.5 bid, down 11½ points from the last round-lot trade at 66 on Wednesday, while its 8¼% notes due 2010 slid to a final round-lot trade of 65 Friday from 74 on Thursday.

He also saw WaMu's 4 5/8% notes due 2014 at 51.5 bid - actually up slightly, though on very light trading, from the 50 level to which they fell on Thursday, but way down from levels around 61 at which they had been trading on Wednesday.

At another desk, the company's 5.625% notes due 2014 were seen having dropped almost 7 points to the 56 level.

The first trader said that Washington Mutual was 'getting slammed" all around - its bonds, its shares and its wider credit-default swaps debt-protection costs. All have been deteriorating since WaMu announced a $3.3 billion quarterly loss, largely due to the provisions it took for expected credit losses.

Company officials at that time tried to put the best possible spin on the big loss story, asserting that WaMu has sufficient capital and credit availability to operate through the current downturn.

"I'm seeing all of these headlines on how much capital it has," he said, "but the bonds keep going down."

He noted that one headline quoted a WaMu defender asserting that the thrift "is not another IndyMac," referring to the big California-based thrift that was placed into receivership by authorities earlier in the month. "But there's all kinds of speculation out there that they will be the next to go. So, who knows what will happen?"

Gaming issues a sucker bet

Among the gaming names, Station Casinos Inc. continued to get hit, its 6% notes due 2012 losing nearly 3 points to end at the 73 level, a market source said. Another, however, only had the bonds down ½ point at 75, but saw Isle of Capri Casinos Inc.'s 7% notes due 2014 down 2 points at the 70 level.

Harrah's Operating's 5½% notes due 2010 were down nearly 1½ points to end at 87, while MGM Mirage's 6 5/8% notes due 2015 were off 1½ points at 75.

Primary sees one launch

No issues were priced in the Friday primary market.

News of one deal launch surfaced late in the day.

A roadshow will kick off on Wednesday for Allis-Chalmers Energy Inc.'s $350 million offering of 10-year senior notes.

The deal is expected to price on Aug. 7 or 8.

RBC Capital Markets and Goldman Sachs & Co. are joint bookrunners for the acquisition-related deal from the Houston-based oilfield services company.

A quiet start

The Allis-Chalmers Energy deal is business for the Aug. 4 week.

Bringing the time-frame closer in, the week ahead, which is the July-August crossover week, gets underway with no deals scheduled to price.

Throughout the past week most sell-side sources professed expectations of meager primary market business through Labor Day.

One source, however, expressed the belief that deal flow will manage to qualify as modest between now and Labor Day.

Meanwhile, in terms of U.S. issuers, only one new deal was priced during the July 21 week.

XM Satellite Radio Inc., which is involved in a merger of equals with Sirius Satellite Radio, Inc., priced a massively upsized $778.5 million (from $400 million) issue of 13% senior notes due Aug. 1, 2014 (Caa1/CCC) at 89.93 to yield 16% on Thursday.

JP Morgan, Morgan Stanley and UBS Investment Bank were joint bookrunners for the deal, proceeds from which will be used to refinance debt in connection with the merger.

The July 21 week also produced some news on the LBO bridge backlog.

ServiceMaster Co., via issuing entity CDRSVM Acquisition Co., rolled a $1.15 billion LBO-related bridge loan into 10¾% PIK toggle notes (B3/B-) which underwriters priced at par.

Meanwhile a high-yield syndicate official reckoned that the total amount of LBO-related hung bridges, which began piling up a little over a year ago and at one point was believed to amount to more than $330 billion, is now around $100 billion, in a roughly 50-50 split between bank and bond bridges.

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