Autos continue to drive higher, Wolverine off; Lyondell to lead $3 billion of deals by week-end

By Paul Deckelman and Paul A. Harris

New York, Sept. 6 - Automotive names continued their upside ride Wednesday, this time being towed along by General Motors Corp., whose bonds firmed solidly as the Detroit giant announced steps to make its cars, light trucks and sport-utility vehicles more attractive to would-be buyers. Ford Motor Co.'s bonds meantime continued the firming trend seen late Tuesday after the Number-Two domestic carmaker surprised Wall Street with its announcement that a new man will be sitting in the driver's seat on a day-to-day basis as chief executive officer, former Boeing Co. executive Alan Mulally.

Outside of the auto names, the biggest mover was actually on the downside, as Wolverine Tube Inc.'s bonds retreated and shares nosedived on the Huntsville, Ala. -based metal tubing maker 's announcement that it was terminating all merger and acquisition discussions with several unidentified partners.

Also on the downside, the bonds of Cenveo Corp. continued to lose ground, pushed down for another session in the wake of the Stamford, Conn.-based printing company upping its unsolicited, and unwelcome, bid for rival Banta Corp., which so far has rejected Cenveo's overtures.

Overall, a high yield syndicate source said that the market was softer on Wednesday, tracking a sell off in equities, as the Dow Jones Industrial Average was down half a percentage point on the session.

Meanwhile the primary market maintained the motionless state it has carried over from the pre-Labor Day week. The first two sessions since the holiday have seen no issues price.

The syndicate official expressed surprise that no drive-by business surfaced during the first two post-holiday sessions, and added that there is a distinct possibility that the primary could see a quick-to-market deal before the end of the week.

Lyondell expected Thursday

Despite the absence of any new issuance the high yield forward calendar, which carried less than $200 million of business over from the pre-Labor Day week, finished the Wednesday session with just over $3 billion of dollar-denominated business expected to price by the end of next week.

An informed source told Prospect News that Houston-based Lyondell Chemical Co. is expected to launch a $1.175 billion two-part offering of notes on Thursday.

Although the final structure has not been announced the offering is expected to be comprised of two tranches of fixed-rate senior notes, the source added.

JP Morgan, Morgan Stanley, Banc of America Securities and Citigroup are joint bookrunners for the transaction, proceeds from which will be used to refinance debt, including debt incurred in Lyondell's acquisition of Citgo Petroleum Corp.'s 41.25% interest in Lyondell-Citgo Refining LP.

The talk on Turning Stone

Information surfaced Wednesday on the only deal that was carried across the Labor Day summer-fall boundary.

Turning Stone Resort Casino, a Syracuse, N.Y., gaming, entertainment and lodging operation run by the Oneida Indian Nation, talked its $160 million offering of eight-year senior notes (Ba3/B+) at 9% to 9¼%, and expects to price the deal on Friday or on Monday, via Banc of America Securities.

Avnet's $250 million five-B deal

As it happens, one quick-to-market offering did surface during the Wednesday session, but it was a split-rated deal.

Avnet, Inc., the Phoenix, Ariz.-based distributor of electronic components and computer products, is expected to price a $250 million offering of 10-year senior notes (Ba1/BBB-) off the high-grade desk on Thursday. The debt refinancing deal will come via Banc of America Securities and JP Morgan.

On Wednesday morning, just as the junk market began digesting news of the Avnet split-rated deal, Moody's upgraded the company's corporate family and senior unsecured debt ratings to Ba1 from Ba2 and its senior/subordinated shelf ratings to prospective Ba1/Ba2 from prospective Ba2/Ba3.

Moody's pointed out that the new issue proceeds will be used to repurchase at least $250 million of the outstanding $361.4 million 9¾% senior notes due 2008, and asserted that the deal will improve the company's financial flexibility by reducing borrowing costs and extending near-term debt maturities.

GM drives higher

Back in the secondary market, "not much was going on in bondland," a trader said, at least not outside of the autos.

Another trader even invoked an automotive metaphor for the market, whose activity levels remained constrained as people still first straggled back from the long Labor Day holiday break. He observed that the junk market "was not firing on all cylinders."

The first trader said that "autos in general continued to move up," paced by GM and Ford, with "Tenneco Automotive [Inc.] along for the ride." He saw the Lake Forest, Ill.-based parts company's 8 5/8% senior subordinated notes due 2014 "above par, which I haven't seen for a long time."

Leading the way was GM, which moved to make its vehicles more attractive to would-be buyers by boosting its powertrain warranties on all 2007 models to five years or 100,000 miles, whichever comes first.

A trader saw GM's benchmark 8 3/8% notes due 2033 at 86 bid, 87 offered, up from 85 bid, 86 offered previously, and saw the 8% notes due 2031 of its General Motors Acceptance Corp. financing unit up ½ point at 101.5. GMAC's 6 7/8% notes due 2012 were seen up 1¼ points at 98.5.

Another trader saw the parent company's 8 3/8s firm to 86.375 bid, 86.875 offered.

He noted that in addition to the better warranty coverage, General Motors chairman and CEO Rick Wagoner on Wednesday also expressed optimism that the "complex" talks the carmaker is involved in with its bankrupt former subsidiary, Delphi Corp., and the latter's labor unions - aimed at reducing the Troy, Mich.-based partsmaker's heavy labor costs without provoking a potentially ruinous strike that could disrupt GM's production - would reach "a reasonable conclusion."

The new five-year/100,000-mile powertrain warranties represent a sharp increase over the current warranty coverage of three years or 36,000 miles. It covers some 900 engine, transmission and driveline components across the GM family of models and is aimed at boosting GM's image as a producer of high-quality cars and trucks in the eyes of consumers - a reputations which the industry bellwether largely lost to Japanese and European carmakers since the 1970s.

Ford driver change still resonates

Ford's 7.45% notes due 2031, meantime, were seen up ½ point at 80,25 bid, 81.25 offered, a trader said, although he added that the carmaker's bonds had really "moved up last night" - that is, Tuesday - on the news that chairman William Clay Ford Jr. will give up his CEO post at the carmaker that he had held for five years relinquishing day-to-day control of the company founded by his great-grandfather, Henry Ford, to incoming CEO Alan Mulally, up till now a senior executive at aerospace giant Boeing.

The Ford bonds, and those of its Ford Motor Credit Co. finance unit, had shot up more than a point on Tuesday's unexpected announcement, which breaks with the usual auto industry practice of picking top executives from the ranks of the industry rather than elsewhere. This departure was seen by industry analysts as an admission by the troubled carmaker that its problems are serious and that it must think outside the box and move in bold new directions to solve them.

Ford Credit's 7% notes due 2013 were seen up another ¾ point Wednesday at 94.5 bid.

Metaldyne steady

A trader saw Metaldyne Corp.'s 11% senior subordinated notes due 2012 "settle in nicely" around the 93.5 area, and the 99.5-par range on its 10% senior notes due 2013.

Another trader said that there was "nothing" doing in Metaldyne on Wednesday, quoting the 11s at 92.75 bid, 93.75 offered. While the bonds were "very active," he said, they "remained range-bound" in that area and finished essentially unchanged.

Yet another trader pegged the 11s at 93 bid, 95 offered, "up a little," and saw the 10s a point better at 99 bid, 101 offered.

The 11% notes have recently gyrated around between the upper 80s and the mid 90s, in the wake of the announcement last week that Japanese partsmaker Asahi Tec Corp. will acquire Plymouth, Mich.-based Metaldyne, a maker of metal automotive parts, in a $1.2 billion deal that includes the repurchase or refinancing of the latter's nearly $900 million of debt. The 11% bonds initially zoomed into the mid-90s from the upper 70s on reports that the deal was coming, but then fell back a few points after the company said that it would tender for them - but at those sharply lower "pre-announcement" levels. Traders said they have stayed in that general area on investor belief that the company might be forced to allow them to put the bonds back to the company at or near par levels on the change of control.

The 10% notes, which moved up to around par from the mid-90s on the announcement of the Asahi deal, will not be part of the tender offer.

Wolverine down the tubes

On the downside, traders saw Wolverine Tube's 10½% notes due 2009 and 7 3/8% notes due 2008 retreat, after the company announced the end of its talks with unidentified parties on possible merger and acquisition transactions.

A trader saw the 101/2s offered at 88, and the 7 3/8s offered at 85, which he called a 3 point drop across the board.

Another trader pegged the 101/2s at 88 bid, 89 offered, which he said was a 2 point fall from Tuesday's levels, and said the 7 3/8s were "a little lower" on the session at 87.5 bid, 89.5 offered.

Still another trader said that the bonds were down a deuce, with the 101/2s at 88.5 bid, 89.5 offered.

Wolverine's New York Stock Exchange-traded shares swooned $1.35 (26.16%) to close at $3.81. Volume of nearly 1.4 million shares was about six times the norm.

Cenveo: Banta bid bops bonds

A trader said that Cenveo "gets weaker, because it looks like they are doing a takeover," the prospect of which caused the former Mail-Well Inc.'s 7 7/8% notes due 2013 to fall to levels at 93 bid, 94 offered, which he said was down from 95 on Tuesday and well down from recent levels at 96-97.

In Tuesday's dealings, Cenveo's bonds had fallen after the company - which has been pursuing rival printer Banta Corp. for some weeks - announced that it had raised its offer to $47 per share, from $46 originally, and also attempted to counter the assertions in Banta's Aug. 16 rejection letter that the deal might never take place.

Banta at that time called the Cenveo bid "highly conditional and ambiguous" and rejected the idea out of hand, saying that Cenveo's offer for the company "merits no further discussion."

Cenveo, in an effort to demonstrate that its bid for Banta is very real, said in a letter to Banta's management that it has obtained a commitment from Lehman Brothers and Wachovia to provide financing to allow it to complete the acquisition of all of Banta's outstanding shares.

"We are certain that the commitment removes any purported concerns you might have about our ability to finance the transaction," the Cenveo letter declared.

CDS trades spur junk buying

A trader said that much of the junk market's activity, such as it is, is being driven by dealings in the credit default swaps market, where investors can buy insurance-like contracts against threatened debt defaults. Settlement of such contracts frequently requires the holder to submit the underlying bonds, spurring buying in the junk market.

"One of the names that it's really driving is Smithfield Foods [Inc.]. Its bonds keep getting tighter, on rumors of a [credit ratings] upgrade. And Chiquita [Brands International Inc.] traded as high as 101, despite the fact that they trade off Treasuries, and Treasuries have been off the last couple of days - this bond hasn't hit that price in a long-time. So a lot of it is CDS driven."

At another desk, a market source meantime saw Chiquita's 7½% notes due 2014 at 88.5 bid and the Cincinnati-based banana importer's 8 7/8% notes due 2015 at 93.5, both up ½ point on the session.

However, another source quoted the 8 7/8s at 95.75 - actually down from Tuesday's closing levels at around 97, but up from its opening Wednesday at 94. The 71/2s were meantime seen finishing around 91.75, up almost a point from Tuesday.

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