Delphi shoots to 101.75/102 on the break; Warner Music up on earnings news

By Paul A. Harris

St. Louis, June 13 - The leveraged loan market came with a better bid across the board during the Monday session, with sources marking Delphi Corp.'s new $1 billion term loan up on the break, and Warner Music Group's term loan also up with the company announcing positive earnings, as it was expected to do.

Meanwhile in the primary market Radio One, Inc. announced it had completed a new $800 million credit facility via Wachovia Securities and Banc of America Securities, while other names were said to be percolating in the pipeline.

The bargains are gone

A portfolio manager told Prospect News on Monday that at present the bank loan market looks very strong.

"It has maybe flattened out just a little bit since the frothy period in March, but I think that the consensus is that happy days are here again," the source added.

"There was a week or two of bargains in the secondary market but they are mostly gone at this point."

There had been a brief window where deals had flexed up and generally looking more accommodating to buyers.

"But within a week to a week-and-a-half any thought that people would be coming with more conservative structures went right out the window and we went straight back to the kinds of lesser quality deals that they would have brought in March," the source added.

Liquidity remains phenomenal

The fund manager also said that the liquidity of the leveraged loan asset class remains phenomenal, even as money has been seen flowing back into the junk bond mutual funds over the past two weeks after a record-breaking string of outflows.

"The hedge funds were reportedly selling and the mutual funds were selling some of their big names, to trade out and then try to buy back in cheaper," the fund manager said.

"It seemed like it could not be too long before the CLO bid stepped in to fill the gap," the source added, pointing out that the collateralized loan obligation market is bigger than the hedge fund market in bank loans.

"It looks like the CLO bid and the mutual fund buyback are the primary drivers on the way back," the manager said.

"The inflows are good. The coupon flows are good. The mutual funds are still making money. Plenty of CLOs are sitting on the sidelines waiting for the environment to be right."

Treasury rally a capitulation move

This source also said that the recent rally in the 10-year Treasury is being undone by more practical assessments of the Federal Reserve's designs on short term interest rates.

"The push of the 10-year yield down to around 3.90% was seen as a capitulation trade on the part of all of the people who see this as a 'regular economy' and thought that the curve should be steepening and rates should be rising," the source said.

"It makes you wonder if you would always make money going the other way when there is a capitulation trade. So far you would have, because Greenspan and his buddies were out there pretty quickly saying that they still think that there is a danger of inflation.

"So everybody is starting to price Fed increases back in. A lot of people who were thinking the Fed might be done now, or done next time, now seem to think there are at least two more rate increases, and possibly two more after that. I think the consensus on the Fed Funds is somewhere in the 3.75% region."

Delphi rises on the break

Troy, Mich. vehicle electronics company Delphi Corp.'s $1 billion term loan broke for trading on Monday, and rose to 101.75 bid, 102 offered, according to a source on a leveraged finance syndicate desk.

Delphi's non-call-one term loan, talked at Libor plus 650 basis points at 99.50, is being led by JP Morgan and Citigroup.

The company is also in the market with a $1.825 billion revolver, amended and upsized from $1.5 billion, at Libor plus 500 basis points.

Proceeds will be used to refinance Delphi's existing credit facility.

Warner Music up on earnings

Warner Music Group Corp. saw its bank loan paper bid up in the secondary market on Monday as the company reported a second quarter profit, reversing the loss it suffered in the second quarter of 2004, as revenue got a boost from the company's recorded music and publishing activities.

A trader who saw the market better bid overall said that Warner Music was trading at 101, up from 100.50 bid, 100.875 offered.

Another trader, who also spotted the paper at 101, commented that the results had not been a surprise.

Warner Music Group, home to record labels including Atlantic, Bad Boy, Elektra, Lava, Maverick, Nonesuch, Reprise, Rhino, Sire and Warner Bros., announced net income of $4 million on Monday, "a sizable improvement from last year's same period loss of $48 million. The company also reported a cash balance as of March 31, 2005 of $447 million, total long-term debt of $2.55 billion and net debt (total long-term debt minus cash) of $2.1 billion."

In addition the company said its revenues grew 4.4% to $767 million, while digital revenues of $35 million, up from $25 million in the first quarter, or 4.6% of total revenue "were a significant contributor, and were greater than the $32 million achieved during the full fiscal year 2004."

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