GM down as Wachovia is out; Charter up on asset-sale buzz; CNH deal hitting road

By Paul Deckelman and Paul A. Harris

New York, Feb. 21- General Motors Corp. bonds, and those of its General Motors Acceptance Corp. financial unit were being quoted down anywhere from a 1½ to 2½ points Tuesday on the double whammy of bad news - the apparent withdrawal of Wachovia Corp. from contention as a possible co-buyer for a majority stake in GMAC, coupled with yet another Moody's Investors Service downgrade of the embattled automotive giant's credit ratings.

On the upside, Charter Communications Inc.'s bonds were better, with traders citing published reports that the St. Louis-based cable television system operator was in the process of an asset sale that could bring it as much as $800 million, which would likely go towards debt reduction.

Sources marked the broad high-yield market firmer on Tuesday as the holiday shortened week of Feb. 20 got underway.

In the primary market, not too much as seen going on in the first session back after the long holiday weekend that started with Friday's sleepy half-day and wrapped up with Monday's full market close for Presidents' Day. CNH Global NV was heard getting ready to hit the road on Wednesday for a brief marketing campaign for a $350 million tranche of eight-year notes. It will join three other prospective issuers who will be out beating the bushes for buyers of their upcoming bond issues starting on Wednesday - Bon-Ton Stores Inc., Dave & Busters Inc., and Quebecor World Inc.

One sell-side official said that the market has been better over the past week, and was better Tuesday, despite a significant slip in the bonds of General Motors.

"There's not much of a forward calendar," the source said.

"Money is leaking out [of the high-yield asset class] according to AMG," the source added, referring to the $116 million outflow from the high-yield mutual funds reported for the week to Feb. 15, as well as to the $529 million of net outflows year to date among funds that report to AMG Data Services on a weekly basis.

"But overall we're seeing a pretty good bid, with the focus firmly on the secondary," the sell-sider said.

A three-day roadshow for CNH

In the primary, CNH Global NV, a subsidiary of Illinois-based farm implement maker Case New Holland Inc., will begin a brief roadshow on Wednesday for its $350 million offering of eight-year senior notes (existing Ba3/confirmed BB-).

The roadshow is set to conclude Friday, with pricing expected later in the day.

UBS Investment Bank has the books for the debt refinancing deal.

Observers may recall that last week Steinway Musical Instruments Inc. ran a four-day roadshow for its four-B rated $175 million issue of 7% senior notes due March 1, 2014 (Ba3/BB-), also via UBS.

The notes priced at 99.2435 to yield 7 1/8%.

A buy-side source who spoke to Prospect News Tuesday on background said that CNH is a name that is well known in the high-yield market, and added that the deal should be well received.

Year-end financials

This buy-side source added that at present high-yield "looks terrific, because we have a real hiatus in supply.

"The new issue market is very quiet," the source added. "I think the reason for that is that people are just getting through their Dec. 31 financials.

"But there is a lot of demand because Treasury rates are so low, and there is still a positive spread between high-yield and Treasuries."

Asked if GM is looming larger as a dark force on the horizon, especially for index-weighted investors, the source said that the Tuesday ratings news from Moody's was "incremental" as opposed to "major."

"It doesn't say 'Yes, they can do a deal,' or 'No, they can't do a deal,' the source said.

"I think you will continue to see GM ebb and flow with the headline news."

GM lower

Back in the secondary sphere, a trader characterized Tuesday as "a GM day." Overall, he said, "it was very quiet, a lot of people were taking the kids on vacation," since schools were off for the week for inter-session in many areas, "and people were just slow coming back today [Tuesday, from the holiday weekend], so I didn't see a whole lot of activity, except for GM."

The carmaker's bonds, and GMAC's were bouncing around at mostly lower level. The trader saw GM's benchmark 8 3/8% notes due 2033 at 70.75 bid, 71.75 offered, well down from Friday's levels at 73 bid, 74 offered.

The bonds had firmed to that latter level Friday on the news that former GM unit Delphi Corp. had extended its self-imposed deadline for getting its unionized workers to agree to big pay and benefit givebacks, thus averting, for now at least, what would have been for GM a potentially costly strike, since the carmaker depends on a steady flow of parts from the bankrupt Troy, Mich.-based automotive electronics maker, GM's single largest parts supplier.

But later in the day Friday, after the debt markets had closed up shop for the week, word began to circulate in the equity arena that Wachovia, the fourth-largest U.S. bank, had pulled out of a buying group for the GMAC stake that also included buyout specialist Kohlberg Kravis Roberts & Co. There was no official confirmation from any of the parties involved, but news reports quoted unidentified sources close to the negotiations for GMAC as saying that Wachovia had indeed pulled out, leaving KKR to find another partner if it wanted to remain in the hunt.

Wachovia/KKR and a group consisting of Cerberus Capital Management LLC and Citigroup's buyout unit were the only two serious bidders to have emerged from GM's now four-month effort to unload a majority stake in GMAC, in hopes of boosting the latter's credit ratings back to investment grade - meaning lower borrowing costs - and of getting from $10 billion to $15 billion from the deal for GM. The potential loss of one of the two bidding syndicates - and the only one including an actual bank, as opposed to the Citigroup Alternative Investments, the buyout unit of a banking company - was seen as a blow to GM's plans.

"The rumors [that Wachovia was going to back out] apparently came to fruition," the trader said, although it should again be noted that nobody is saying anything officially, since the talks are private. "So GM fell off today [Tuesday] on that news and the news of the downgrade."

Moody's lowered GM's corporate credit rating to B2 from B1 previously, and gave it a negative outlook. The ratings action, the agency said, "reflects increased uncertainty that the company will be able to achieve all of the steps necessary to establish a competitive wage, benefit and supplier cost structure outside of bankruptcy. These steps include a successful resolution of the Delphi reorganization and the negotiation of a considerably more competitive labor contract with the [United Auto Workers] during 2007.

"GM also faces the near-term challenge of completing the sale of GMAC and resolving the current SEC investigations into various accounting matters. Finally, the company's operating profile continues to be pressured by declining U.S. market share, and the ongoing shift in consumer preference away from trucks and SUVs as it introduces its T900 series of SUVs and light trucks," Moody's said.

A trader at another shop saw the flagship GM bonds down 2¼ points at 70.75 bid, 71.25 offered, while GMAC's 8% notes due 2031 slid to 93.5 bid, 94, down 2¾ points.

Yet another trader saw the GMAC bonds at 94 bid, 95 offered, down two points, while the GM bonds were 1½ points lower at 71 bid, 72 offered.

Among the less widely traded issues, a trader saw GMAC's 6¾% notes due 2014 at 90 bid, 91 offered, and its 6 7/8% notes due 2011 at 91 bid, 92 offered, both down two points.

Ford lower too

The ripple effect from GM's downturn was most keenly felt in the bonds of arch-rival Ford Motor Co., whose benchmark 7.45% notes due 2031 were seen by a trader down 1¼ point at 72.5 bid, 72.75 offered, while its Ford Motor Credit Co. 7% notes due 2013 lost ¾ point to end at 89.5 bid, 90 offered.

But among other automotive names, the impact was limited, with a trader seeing Delphi's 6.55% notes coming due later this year down half a point at 55.75 bid, 54.75 offered, while its 7 1/8% notes due 2029 were up half a point at 55.25 bid, 56.25 offered.

Visteon Corp.'s 8¼% notes due 2010 were ¼ point lower at 83.25 bid, 84.25 offered, while Dana Corp.'s 5.85% notes due 2014 were half a point better at 67.5 bid, 68.5 offered.

TRW unchanged despite higher earnings

A trader saw TRW Automotive Holdings Corp.'s 9 3/8% notes due 2013 and 11% notes due 2013 each trading unchanged, at 108.5 bid, 109.5 offered, and 112 bid, 113 offered, respectively, even though the Livonia, Mich.-based automotive systems manufacturer posted solidly higher fourth-quarter earnings of $59 million (57 cents per share) versus a year-earlier loss of $62 million (63 cents per share). For all of 2005, earnings were $204 million ($1.99 per share), well up from $29 million (29 cents per share) in 2004.

The bonds, he said were "trading very rich already," with spreads over Treasuries at a very unjunk-like "inside 200 [basis points] over, so there wasn't much room for them to go anywhere."

Navistar up on tender

He did see Navistar International Corp.'s 6¼% notes due 2012 a point higher at 100.25 bid, 101.25 offered, attributing the gain to the news that the Warrenville, Ill.-based maker of buses, heavy trucks and diesel engines launched a tender offer for those $400 million of 61/4s as well as for its $393 million of 9 3/8% notes due 2006 and its $250 million of 7½% notes due 2011.

Charter gains on sale talk

Apart from the automotive sphere, a trader said, Charter Communications was up, citing news reports in communications industry trade papers like Multichannel News to the effect that Charter had sold systems covering 243,000 subscribers in West Virginia and Virginia for as much as $750 million to $800 million, or about $3,000 per subscriber, considered a fairly high price. The reports indicated that there had been several potential buyers, with the most likely winner - expected to be announced possibly as early as this week - a company called Cequel III, run by former Charter chief executive officer Jerry Kent, who left Charter in 2001 to form his new company. Cequel III already controls cable operator Cebridge Connections, which has about 400,000 subscribers in several Southwestern states, and which has a deal pending to acquire systems serving over 900,000 subscribers from cable giant Cox Communications Inc.

The $3,000 per subscriber that Charter figures to get from Kent is "pretty sexy," the trader said, since that's well above the industry norm - a sign that he had to outbid one or more rivals to win the auction.

The trader saw Charter's 11% notes due 2015 "up a couple" of points at 84.5 bid, 85 offered. The recently issued bond has emerged as a new benchmark for Charter, he said.

Among its more established issues, Charter's 11 1/8% notes due 2011 were up a point at 54 bid, 56 offered, while its 8 5/8% notes due 2009 were up a point at 75.75 bid, 76.75 offered, "so Charter felt better."

MeriStar jumps on buyout

Traders saw MeriStar Hospitality Corp.'s 9 1/8% notes due 2011 up as much as five points on the session, to 115 bid, 116 offered - albeit on relatively thin trading - on the news that the Bethesda, Md. based hotel industry real estate investment trust has agreed to be acquired by an affiliate of The Blackstone Group, and will tender for those bonds, and its 9% notes due 2008 (see related story elsewhere in this issue).

The trader saw those 9s up about ¾ point to a point, at 105.75 bid, 106.75 offered. He saw MeriStar's 10½% notes due 2009 unchanged at 105.5 bid, 106.5 offered - right around the price at which $100 million of those notes have already been called for redemption on March 8. MeriStar plans to call the remainder of the notes, using the proceeds from a recently announced separate asset sale to Blackstone.

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