Ford revamps parts purchasing, but bonds steady; Hornbeck deal prices; funds see $1.295 billion outflows

By Paul Deckelman and Paul A. Harris

New York, Sept. 29 - Ford Motor Co. announced plans to overhaul the way it buys parts and components for use in its vehicles - a move which will solidify the status of some of its suppliers, but which is expected to leave some others on the outside looking in. Among the companies which have been designated as select strategic suppliers of key parts, and which are likely to benefit from the new arrangement, are such well-known high-yield auto sector names as former Ford unit Visteon Corp., the struggling Delphi Corp., and Lear Corp. However, traders saw very little activity in those names, or in the names of other suppliers not on the initial list.

In fact, traders saw a relatively restrained secondary market, due to the Deutsche Bank Securities High Yield Conference, which many portfolio managers and other decision-makers have been attending this week.

In the primary arena, very late in the day, Hornbeck Offshore Services Inc. brought a small add-on offering of existing 6 1/8% notes to market.

Elsewhere, details began to emerge on the financing for E*Trade Financial Corp.'s announced $1.6 billion acquisition of BrownCo from JP Morgan Chase & Co. Some of the money will be raised by a new issue of bonds, while the rest will be in the form of convertibles and equity. E*Trade was in the market just about two weeks ago, when it sold $450 million of bonds in a two-part deal. Price talk was meantime heard on deals from Affinion Corp. and Chart Industries.

Overall sources marked junk unchanged on Thursday, with some sectors firming slightly while others, including healthcare, traded off.

And when the day's not-terribly busy trading had wound down, market participants familiar with the weekly junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that some $1.295 billion more left those funds in the week ended Wednesday than came into them.

It was the first billion-dollar-plus outflow seen since the $1.131 billion of outflows recorded in the week ended March 30, and the biggest hemorrhage seen since the week ended March 23, when $1.43 billion more left the funds than came into them.

More immediately, it also marked the third sizable outflow seen in as many weeks, including the $329.1 million outflow seen in the previous week, ended Sept. 21.

Over the past three weeks, outflows have totaled $1.823 billion, according to a Prospect News analysis of the AMG figures. Outflows have now been seen in four weeks out of the last five, and 10 weeks out of the past 12. During that latter timeframe, net outflows have totaled approximately $2.676 billion, according to the Prospect News analysis.

For the year so far, outflows have now been seen in 30 weeks of the 39 since the start of the year, against only nine weekly inflows. Cumulative net outflows for the year total around $9.715 billion, according to the Prospect News analysis, up from about $8.42 billion last week.

The latest run of negative numbers would seem to indicate a reversion to the trend seen earlier in the year, when outflows totaling about $6.776 billion were seen in 15 straight weeks from mid-February through late May, according to the analysis. After that, there was a short period in which no clear trend could be seen, with about a month of inflows and outflows showing up on alternating weeks - but since July, money has been almost consistently flowing away from the funds.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants, since they are considered a generally reliable barometer of the overall liquidity trends - and because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

A shocker

The number sent ripples rolling through high yield.

"It's shocking," said a high yield investor, speaking on background.

"I knew the market was bad, but not that bad."

Primary quiet

The primary market passed the day in almost utter quiet - which was broken only after the close when terms emerged on Hornbeck Offshore Services Inc.'s $75 million add-on to its 6 1/8% senior notes due Dec. 1, 2014 (BB-)

The company priced the tap at 99.50 to yield 6.232%, inside of the 99.00 area price talk.

Goldman Sachs & Co., Bear Stearns & Co. and Jefferies & Co. ran the books.

Does it end in the red?

According to the Bank of America High Yield Broad Market Index junk ended the Thursday session with a year-to-date return of 1.5% even.

Prospect News asked this investor whether it is conceivable that high yield could end 2005 with a negative return.

The source responded in the affirmative.

"If they continue to bring new issues it will be in the red," said the investor.

"If you continue to bring large deals onto the new issue calendar, at ever-larger yields, it puts pressure on the secondary, and spreads widen out."

Talking the deals

With Neiman Marcus's downsized $1.2 billion LBO deal having been done earlier in the week, another large LBO transaction is headed for pricing.

Affinion Group issued price talk Thursday on its $750 million two-part high-yield note offering, according to a market source.

The company talked its $250 million offering of eight-year senior notes (B3/B-) at a yield in the 9% area.

Meanwhile the company talked its $500 million offering of 10-year senior subordinated notes (Caa1/B-) at the 10 5/8% area.

Pricing is expected on Monday.

Credit Suisse First Boston and Deutsche Bank Securities are joint bookrunners.

Also on Thursday Chart Industries talked its $170 million offering of 10-year senior subordinated notes (B3/B-) at 8 7/8% to 9 1/8%, with pricing expected on Friday via Morgan Stanley and Citigroup.

Radnor to tap floater due 2009

Although no roadshow starts were heard during the session, late Thursday Radnor, Pa.-based specialty packaging firm Radnor Holdings Corp. circulated a press release announcing its intention to do a $30 million tap of its three-month Libor plus 675 basis points senior secured floating-rate notes due April 15, 2009 (existing ratings B3/B).

The original $70 million issue was priced at par on April 15, 2004, via bookrunner Lehman Brothers.

The company also announced that it plans to sell $20 million of preferred stock.

Neiman Marcus steady in trading

The Neiman Marcus Group Inc. 10-year notes that priced Wednesday at par were "offered at par," a trader said. "Most guys are saying they got full allocations, and there was no secondary buying" of the $1.2 billion issue. "The bonds were offered where they came. Anyone who bought the bonds with the hope of flipping them - there's no hope in that."

At another desk, a trader said that "not much activity" was going on in the new Neiman Marcus bonds, with the 10 3/8% subordinated notes due 2015 at 99.5 bid, par offered, and the 9% senior PIK notes due 2015 "a touch better," at 100.5 bid, 100.75 offered.

The trader also saw Whiting Petroleum Corp.'s new 7% notes due 2014 at 101 bid, 102 offered, up from Wednesday's par issue price.

Ford unchanged

Back among the established issues, a trader said that overall, the market "is so quiet, with the Deutsche Bank conference going on, it's like pulling teeth to get anything done." He did characterize the environment as "generally softer," but with not much passion behind it.

For instance, he saw little or no movement in Ford's bonds, nor those of any of the automotive suppliers, despite the well-publicized news out of Dearborn, Mich., that the Number-Two carmaker will cut its long list of parts suppliers about in half and will forge stronger strategic bonds with the key suppliers whom it has designated, which is likely to mean bigger orders for those companies.

Delphi gains

At another desk, a trader saw some of Delphi's bonds about a point better, its 6.55% notes due 2006 firming to 71 bid, 73 offered, its 6½% notes due 2009 unchanged at 67 bid, 69 offered, its 6½% notes due 2013 rising to 66 bid, 68 offered, and its 7 1/8% notes due 2029 at 62 bid, 64 offered.

Yet another trader saw the 6.55s unchanged at 71.5 bid, 72.5 offered, the 6½% '09s unchanged at 67.5 bid, 68.5 offered, the 6½% '13s at 66 bid, 68 offered, also unchanged, and the 7 1/8s steady at 62 bid, 64 offered.

He saw Ford's benchmark 7.45% notes due 2031 "moving sideways," at 77.5 bid, 78.5 offered, while Visteon's 8¼% notes due 2010 were at 94.5 bid, 95.5 offered and its 7% notes due 2014 closed at 86.5 bid, 87.5 offered, which he said "looks off a half [point]."

The trader further said that "noting was shaking" in the bonds of either Dura Automotive Systems Inc. or Dana Corp. - big Ford suppliers not on the company's initial list of key suppliers.

Ford - which annually buys about $70 billion of auto parts that go directly into its vehicles from about 2,500 suppliers, said it was entering into new long-term agreements with "select suppliers of key components globally to create a stronger, sustainable business model." It initially named Visteon, Delphi and Lear as key suppliers, along with Magna International Inc., Johnson Controls Inc., Yazaki Corp. and Autoliv Inc., whom it said would be among the first suppliers to enter into the new "Aligned Business Framework" agreements with Ford, with other key suppliers to be identified and named later.

Ford said that the program includes a commitment from the suppliers picked to bring "leading-edge technological innovations to Ford."

By expanding its business with the selected supplier and inking more long-term contracts with them, Ford will, "over time, reduce by approximately 50% the number of suppliers for key high-impact parts and components," the auto giant said.

Finlay rebounds a little

Outside of the automotive area, Finlay Fine Jewelry's 8 3/8% notes due 2012 - which were seen having fallen anywhere from four to six points Wednesday after the company indicated that it will no longer lease space in some 194 department stores as a result of the Federated Department Store/May Stores merger, gained back perhaps half a point of that to 84 bid.

A trader saw "nothing doing" in Nortel Networks Corp.'s 6 1/8% notes due 2006, which were steady at 100.375 bid, 100.875 offered, even as the Brampton, Ont.-based telecommunications equipment maker disclosed that China Mobile - the world's biggest wireless GSM operator - had selected Nortel to expand its digital wireless network in six regions, signing several contracts totaling about $150 million with Nortel since January.

Charter Communications Inc.'s bonds were a bit lower, after Standard & Poor's lowered the bonds of the St. Louis-based cable operator's Charter Communications Holdings to SD - "selective default" - status, following the completion of the company's massive exchange offer for much of its debt. Charter announced the official closing of the offer on Wednesday, with the holders of some 81% of the CCH 2009, 2010, 2011 and 2012 bonds exchanged them for new debt having longer maturities - which S&P considers tantamount to a default.

Charter's zero-coupon notes due 2011 were seen off half a point to a point, around 73.5 bid.

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