Auto names keep firming on Ford numbers; primary activity falls off

By Paul Deckelman and Paul A. Harris

New York, April 20 - Automotive supplier sector names were improved for a second consecutive session, buoyed by quarterly results from Ford Motor Co. which were better than expected. Also up were some of the technology names, such as Amkor Technology Inc. and Unisys Corp. which got a boost from better earnings from tech sector leader Intel.

In the primary market - still reeling from having three big deals pulled from the calendar on Tuesday (Dimon Inc., Cheniere Energy and Hughes Network Systems LLC) - activity was restrained, limited to price talk emerging on the prospective offerings for NationsRent Companies Inc. and Piaggio Finance.

Back in the secondary realm, the market "opened strongly," a trader opined. "When we came in, it was up about a point. But it gave that all back," to end down about a quarter to half a point overall.

"It just could not maintain the gains," he said. "There was not a lot of conviction there. With equities falling down, it makes it very difficult for high yield to stay firm."

He did acknowledge that "between yesterday [Tuesday] morning and this [Wednesday] morning, the market seems like it's trying to push itself higher. But it just can't. It keeps running into resistance, and sellers. Activity is - generally - pretty quiet."

"Early this morning the hedge funds were into it and we were seeing a decent bid," a market source commented.

"But by the end of the afternoon things traded off by just as much if not more."

For a second straight day, the focus was on the automotive sphere, as a major - still - investment-grade carmaker was out with its quarterly results.

But unlike General Motors Corp., which on Tuesday had reported a loss of more than $1 billion in the latest quarter, Ford actually managed to turn a profit - even though the Number-Two U.S. carmaker did post a 38% drop in first-quarter earnings versus a year earlier, its earnings dragged down by falling U.S. sales and rising costs.

Still, Ford's $1.21 billion (60 cents a share) profit, though down from $1.95 billion (94 cents a share) in the year-ago quarter, beat expectations. Excluding special items, Ford said it earned 62 cents a share - handily trumping Wall Street's ex-items projections of, on average, 38 cents a share.

Those results - as well as Ford's indications that it will cut production to reduce built-up inventories, and might consider selling its Hertz car-rental unit - helped give the company's bonds a boost.

Although Ford is still investment-grade rated and is considered less likely to be downgraded to junk than its larger rival, GM, the bonds are nonetheless being quoted in dollar-price terms at some desks, just as if they were already junk, and their levels are considerably off par.

Ford's 7.45% notes due 2031 and the 7% notes due 2013 of its Ford Motor Credit financing unit, were both seen up more than a point in reaction to the results, at around 80 bid and 89 bid, respectively.

Other auto names rise

Among the purely high-yield issues in that auto sector, Dura Operating Corp.'s 9% subordinated notes due 2009 were a point better at 75 bid, a market source said, and its 8 5/8% senior notes due 2012 were likewise a point better at 90 bid.

He also saw TRW Automotive's 11% notes due 2013 up a point at 110.25, while its 9 3/8% notes, also due 2013, were ¾ point better at 106.5. Tenneco's 10¼% notes due 2013 up two points at 111.

He saw former Ford unit Visteon Corp.'s 7% notes due 2014 a point better at 76, even though Standard & Poor's cut the company's debt ratings three full notches, with the senior unsecured rating tumbling to B+ from BB+ previously.

However, he pegged Visteon's 7.95% notes coming due on Aug. 1 at par, down slightly, and its 8¼% notes due 2010 a quarter-point lower at 85.5.

He also saw Collins & Aikman Products Co.'s 10¾% notes due 2011 unchanged at 77.5, and its 12 7/8% notes due 2012 also steady, at 38.5.

Another trader said the senior bonds had gone as high at 79 bid in intraday trading before dropping back to close at the same 77 level at which it had started, while the 12 7/8s briefly firmed to 40 before dropping back to 38 bid, 40 offered, about unchanged.

Yet another trader, however, said that news of Ford's coming 4.8% production cutback had a negative impact on the junk-rated supplier companies, since it means that many fewer components that Ford will have to buy.

"That took [away] any kind of upward momentum in the auto suppliers [after Tuesday's gains], and they were further constrained by the three-notch downgrade of Visteon, although that didn't kill the bonds, which were already trading at lower levels."

He saw Visteon's 8¼% 2010s having retreated to 85 bid, 86 offered from 86 bid, 87 offered the previous session.

He saw the Collins & Aikman 10¾% notes move up to 79.5 bid, "before backing off to about a 78 level."

Overall, he said, the auto parts suppliers were unchanged to down half point.

Techs gain on Intel earnings

Outside of the auto sector, the tech names traveled higher, as industry leader Intel Corp. had better results.

Amkor's 7 1/8% notes due 2011 and 10½% notes due 2009 were each up two points, at 84 bid and 88 bid, respectively. The West Chester, Pa.-based maker of products for the semiconductor industry's 7¾% notes due 2013 were up 1¼ points at 83.25.

Unisys' 6 7/8% notes due 2010 were 1½ points better at 96.

A trader saw AK Steel Corp.'s bonds "up a little bit," with the Middletown, Ohio-based steel maker's 7¾% notes seen as good as 95 bid, before dropping back to 93.56 bid, 94.5 offered.

Continental Airlines' 8% notes were unchanged at 98 bid, 99 offered. The Houston-based air carrier reported a wider first quarter loss due mostly to increased fuel prices (see related story elsewhere in this issue).

NationsRent talked at 9¼%

Meanwhile the primary market saw no activity, as price talk circulated on two deals.

With a forward calendar that contains over $2.75 billion and an even €2 billion, details about timing have become difficult to come by these days, one market source quipped late Wednesday.

Three companies are expected to price offerings on Thursday, and news circulated Tuesday on two of those.

NationsRent Cos., Inc. plans to price its $150 million offering of 10-year non-call-five senior unsecured notes (Caa1/B-) on Thursday, via Jefferies.

The Fort Lauderdale, Fla., full service equipment rental company talked the notes at a yield in the 9¼% area.

Elsewhere Milan, Italy scooter-maker Piaggio SpA talked Piaggio Finance's €150 million offering of seven-year non-call-four senior notes (B2/B) is talked at 10¼% area.

Lehman Brothers, Deutsche Bank Securities and Caboto are joint bookrunners.

NewPage $900 million is Thursday's business

Finally, the market anticipates hearing terms Thursday on a restructured $900 million three-part deal from Dayton, Ohio coated and carbonless paper company NewPage Corp.

Price talk emerged Tuesday on the offering and the company shifted $50 million to the secured tranches from the subordinated tranche.

A $350 million tranche of eight-year non-call-four senior subordinated notes (Caa2/CCC+) is talked at 11 3/8% to 11 5/8%. The tranche was decreased from $400 million.

Meanwhile the company increased its two secured tranches (B3/CCC+) to $550 million from $500 million. Tranche sizes remain to be determined.

Talk is three-month Libor plus 550 basis points on the seven-year non-call-two second-lien senior secured floating-rate notes.

Meanwhile talk is 9 3/8% to 9 5/8% on the seven-year non-call-four second-lien senior secured fixed rate notes.

Goldman Sachs & Co. has the physical books for the acquisition deal.

Big liquid deals "a plus"

One investor, speaking on background, told Prospect News that the $900 million size of the NewPage deal should be viewed as a plus because the buy-side derives a certain amount of comfort in the apparent liquidity that big deals seem to proffer.

However a sell-sider not involved with the NewPage transaction said Wednesday that given the uncertain technical dynamics of the present market, with a sustained period of outflows from high-yield mutual funds (nine straight weeks, according to AMG Data Services) coupled with evidence of a corresponding drain from institutional high-yield coffers, filling the order book for a $900 million deal might not be a walk in the park.

The bookrunners are being quiet

Beyond NationsRent, Piaggio and NewPage, which are expected to be Thursday business, assigning timing parameters to high-yield deals thought to be in the market involves an increasing amount of guesswork, one sell-side source said Wednesday.

"You hear approximate times of roadshow starts, but there may not be an expected pricing date," the sell-sider said.

"Or you hear that the deal is on the road this week, or will be on the road next week.

"Basically I think people are being kind of quiet right now about the timing of their deals because the news is mixed.

"On Tuesday you had what appeared to be a good execution, with Brown Shoe," the source added, pointing to Brown Shoe Co., Inc.'s $150 million of seven-year senior notes (B1/BB-) that priced at par on to yield 8 ¾% - a deal that was not restructured and that came within original price talk.

And the Banc of America Securities-led deal was said to be holding in well in secondary trading on Wednesday.

However, the sell-sider continued, "you also had three deals pulled on Tuesday: Cheniere, Dimon and Hughes Energy."

The source was referring to Cheniere Energy, which postponed its $500 million offering of 10-year senior notes (B3/B+), and Dimon Inc. (Alliance One International Inc.) which postponed its $650 million three-part bond offering on Tuesday, both citing market conditions.

However market sources expect Cheniere and Dimon to return when conditions improve.

But Hughes Network Systems LLC, also citing market conditions, actually withdrew its $325 million offering of eight-year senior notes on Tuesday, opting instead to shift its financing to the bank loan market.

Late Wednesday another sell-side source advised Prospect News that in order to find a day that saw similar events in the primary market it is necessary to turn back the calendar to Friday, May 7, 2004, when two prospective issuers postponed and one delayed.

On that day Malaysia's NCLC, a wholly owned subsidiary of Star Cruises Ltd., postponed its $350 million 10-year senior notes offering (B2/B+) citing market conditions. Collins & Aikman Products Co. postponed its $500 million two-tranche offering on the day its roadshow was set to start, also citing market conditions. Finally, American Equity Investment Life Holding Co. delayed its $150 million offering of 10- and 12-year senior notes.

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