Auto sector better, even as Metaldyne eases on deal news; other sectors quiet

By Paul Deckelman and Sara Rosenberg

New York, Sept. 1 - The battered automotive supplier sector continued to gain strength in Friday's relatively light, abbreviated pre-holiday trading, with names such as Visteon Corp., Dura Automotive Systems Inc. and Hayes Lemmerz International Inc. all seen at least a point higher - even as another name from that same grouping, Metaldyne Corp., retreated from the highs that its bonds hit on Thursday after the company made official what most market denizens had already surmised - that it had agreed to be bought out by Japanese parts manufacturer Asahi Tec Corp. in a deal valued at some $1.2 billion, including the repurchase or refinancing of around $900 million of Metaldyne debt.

Elsewhere, traders said there was relatively little trading activity or bond price movement, with the debt markets in the United States having officially closed at 2 pm. ET Friday ahead of the Labor Day holiday break, which also shuttered all domestic financial markets on Monday as well.

Bank loan traders saw virtually no activity in the paper of distressed companies

Back in the junk bond market, a trader in distressed bonds said, for instance, that he saw "nothing doing" in such familiar names as Adelphia Communications Corp., Northwest Airlines Corp. or Calpine Corp.

While seeing perhaps a few trades, he saw little change from prior levels in such bonds as Movie Gallery Inc.'s 11% notes due 2012, unchanged at 66 bid, 68 offered, Refco Inc.'s 9% notes due 2012, steady at 80 bid, 82 offered, or Armstrong World Industries, whose bonds hung in at the same 64 bid, 66 offered level they had held all week.

The trader did see a bit of movement in another asbestos-challenged name, Owens Corning, whose 7½% notes due 2018 firmed to 56 bid, 58 offered, up 2 points. However, he said he had seen no news to explain the sudden strength in the bankrupt Toledo, Ohio-based insulation maker.

Clearly, though, the big news in the distressed market was in autos, in the wake of the Metrodyne deal.

Metaldyne deal official

As was the case on Thursday, Metaldyne was the big mover of the day - but while the Plymouth, Mich.-based metallic parts supplier's bonds jumped Thursday on what at that time were still-unofficial news reports that a deal to sell the company to Japan-based Asahi Tec Corp. was coming, they retreated Friday after the official announcement was made, in a classic case of "buy the rumor, sell the news."

A trader said that Metaldyne "got easier," quoting the company's recently volatile 11% subordinated notes due 2012 as having dropped back to levels as low as 87 bid, 89 offered from a Thursday close at 93 bid, 95 offered, although those notes were "bouncing around," he said, moving back up from the lows to end at around 89 bid, 91 offered.

He meantime saw the company's considerably more stable 10% senior notes due 2013 ease only slightly, to 98 bid, 99 offered from par bid, 101 offered on Thursday.

He suspected that at least some of the pullback was attributable to profit-taking off the strong gains notched on Thursday, when the 11s zoomed up into the lower 90s from prior levels in the upper 70s, at least a 15 point surge in response to a news service story touting the Asahi Tec deal, while the 10s firmed to around par from the mid-90s.

He also speculated that "it could be that [bond investors] are not sure of the deal getting done."

Another trader who saw the Metaldyne bonds back off a little, said that they ended "back up" from their session lows, with the 11s closing at 90.5 bid, 91.5 offered, down only slightly from the 91.5 bid, 93.5 offered level at which the bonds had been quoted at his shop late Thursday, and up from their Friday intraday lows at 87 bid, 88 offered. He saw the 10s end at 99 bid, par offered, down about half a point on the day.

He cited "a blurb that they're going to need to tender for the bonds where the bonds were previously."

In its announcement of the deal, the company noted that among other conditions, the closing of the merger would be subject to the completion of a tender offer for a minimum of $225 million total principal amount of its 11% notes and its 10% subordinated notes due 2014 (the tender offer, as outlined by the company announcement, would not include the $150 million of 10% senior notes due 2013). At the end of the second quarter, Metaldyne had $250 million principal amount of the 11s outstanding, as well as $31.7 million of the 10% 2014 notes outstanding, with all of the latter currently in the hands of DaimlerChrysler Corp. The offer would take place "at a tender price reflecting the price of the 11% notes during the recent preannouncement period," when the bonds were mostly in an upper-70s context.

Along with the tender offer, Metaldyne will seek a waiver of the notes' change-of-control provisions.

Metaldyne said that any notes that remain outstanding after completion of the tender and consents will not benefit from any new guarantees or other credit support from Asahi Tec or any of its current subsidiaries.

"People feel the tender could be in the upper 70s," the second trader said. "But I would think that no one would really believe in that anymore, and that this would constitute a legitimate change of control, and they'll need to pay a better price, so the bonds have bounced back up."

He said that the bonds were "pretty active" amid the mostly quiet pre-holiday market Friday, with "mostly institutional business."

Other financing and debt-related conditions for the completion of the acquisition will include the receipt of consents and waivers from its bondholders, as well as the refinancing of Metaldyne's senior bank debt. As of the end of the quarter, the company had total senior credit facility debt of $409.72 million, consisting of $374.72 million of terms loans and $35 million drawn under its revolving credit line. It had an additional $19.4 million due under a separate senior secured credit facility due 2009, and $7.9 million of capital lease obligations and other miscellaneous debt.

Metaldyne said that further, Asahi Tec may elect not to close if Metaldyne's rating for senior term debt is lowered below certain levels and its interest cost for that debt exceeds certain levels.

Auto parts steer higher

The Metaldyne deal was seen helping the bonds of other names in the beleaguered auto parts sector. A trader saw Visteon's 7% notes due 2014 up a point at 91.5 bid, 92.5 offered, and saw Dura's 8 7/8% senior notes due 2012 also a point better at 74.5 bid, 75.5 offered, although the Rochester Hills, Mich.-based parts maker's hard-hit 9% subordinated notes due 2009 were unchanged at 16.5 bid, 17.5 offered.

Another trader also saw the Dura seniors up a point, at that same 74.5 bid, 75.5 offered level, but saw the 9s also up ½ point to a point at 17 bid, 18 offered.

He saw the bonds of bankrupt Troy, Mich.-based parts maker Delphi Corp. up ½ point at 90 bid, 91 offered on its 6½% notes due 2009.

A trader saw Hayes Lemmerz International's 10½% notes due 2010 at 77.5 bid, up from 76.625 previously, while another saw the bonds move up "maybe a point" on the day from unchanged morning levels around 77 bid, 79 offered. He saw the high trade of the day around 79, although that was "a small piece," with most of the several trades that did take place in the name in a context of 76.75-78.75.

At the same time, the Northville, Mich.-based automotive wheel-maker's Nasdaq Global Market-traded shares soared 37 cents (21.76%) to close at $2.07. Volume of 597,000 shares was nearly double the usual turnover.

"All of these guys who were kind of on the brink - Hayes, Dura - have certainly moved up," the second trader said. "It was all on sympathy, that a weak sister like Metaldyne has attracted a suitor and so we're getting to 'who's next?' - and Hayes, and Dura and Cooper [Standard], all of those kind of credits are candidates. I'm not sure they're going to be acquired, but that's why Hayes would be up."

Hayes Lemmerz was one of eight auto-parts suppliers recently put on watch for a possible ratings downgrade by Moody's Investors Service following big customer Ford's announcement of coming major output cuts

Not all of the auto parts names shared in the upside move; a trader saw Dana Corp.'s 6½% notes due 2008 stuck at 79 bid, 80 offered, and Tower Automotive's 12% notes due 2013 unchanged at 37 bid, 39 offered. Collins & Aikman Corp.'s 10¾% senior notes due 2011 were still bid at 5, although its offer level had widened out to 7 from 6 previously.

Ford off, GM up on sales data

Ford's bonds, meantime, were seen off slightly after the carmaker reported an 11.6% fall in total vehicle sales in August from year-earlier levels. Sales of Ford's most profitable vehicles, its pickup trucks and sport-utility vehicles, slid 20.8% year-over year - sales of its popular F-series truck were off 15% - although car sales rose 8.5% on the popularity of Ford's mid-size Ford Fusion, Mercury Milan and Lincoln Zephyr sedans.

Ford - which suffered the embarrassment of being passed sales-wise by Japanese rival Toyota in July, surrendering second-place in the U.S. auto market to an overseas carmaker for the first time ever - regained that second spot in August.

A trader saw Ford's 7.45% notes due 2031 at 78.25 bid, 78.75 offered, and its Ford Motor Credit 7% notes due 2013 at 92.75 bid, 93.25 offered, each off 3/8 on the day.

Meantime, Ford arch-rival General Motors Corp.'s benchmark 8 3/8% notes due 2033 were ¼ point better at 83.75 bid, 84.75 offered, while its General Motors Acceptance Corp. financing arm's 8% notes due 2031 were down ¼ point. Industry leader GM reported a 3.9% rise in total vehicle sales in August from year-ago levels, with car sales up 3.9% and truck and SUV sales up 4%.

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