GMAC bonds gyrate at higher levels on funding news; Calpine gets clobbered; Sirius seen better

By Paul Deckelman and Paul A. Harris

New York, Sept. 12 - Bonds of GMAC LLC - the former General Motors Acceptance Corp. - and its Residential Capital Corp. mortgage financing unit were seen gyrating around at mostly higher levels on Wednesday, having been given a boost by the announcement late in Tuesday's session that GMAC had lined up some $21 billion in new funding via Citigroup - a giant chunk of capital at a time when some other companies involved in residential lending have been scrambling to raise new cash. However, traders saw the bonds come off their early highs to end mostly unchanged to up just a little.

Elsewhere, Sirius Satellite Radio Inc., and XM Satellite Radio Holdings Inc.'s bonds and shares were seen both better on an analyst's positive comments about the pending merger of the two so far money-losing satellite radio broadcasters - the second time that has happened in as many weeks.

Among other media names, Primedia Inc.'s bonds were better, despite a lack of fresh positive news out about the New York-based magazine and internet website publisher.

Out of the distressed-debt precinct came word that Calpine Corp.'s bonds were getting badly beaten up, on the possibility of lower recovery valuations for bankrupt San Jose, Calif.-based power producer's bondholders.

Primaryside activity was virtually nil.

Secondary market activity wasn't much better, with some junk marketeers making an early exit ahead of the two-day Rosh Hashanah Jewish new year holiday, which began Wednesday evening and which is expected to thin the market's ranks on Thursday and Friday.

GMAC, ResCap see only small gains on financing

GMAC's benchmark 8% notes due 2031were seen bouncing around in a range between 89 and 93 on Wednesday, before finishing around 91, little changed from their opening. Those bonds had mostly traded in an 89-90 context on Tuesday, although there were several large trades seen pretty late in that session, after most participants had left for the day, at levels as high as 92.5, in apparent response to the announcement of the new financing.

Perhaps the most actively traded GMAC issue of the day, its 7¾% notes due 2010, was likewise seen bouncing around in a 4 point range between 94 and 98, before ending up slightly at 97.

Other GMAC bonds were also up a little, including its 6 7/8% notes due 2011, which pushed up to around 93 bid on Wednesday from Tuesday's close just under 90 - which was a little improved from where those bonds had traded earlier in the day. Its 6 7/8% notes due 2012 were seen up nearly a point at 88.5.

GMAC moved "not a whole lot," said a trader, who opined that the "fresh positive feeling [from the late-Tuesday announcement of the $21 billion of new financing facilities] lasted for about an hour, then - nothing" as the novelty of the news wore off.

That trader also saw GMAC-owned ResCap's bonds "trying to go up" by ½ to 1 point in early dealings; however, that paper "ended unchanged - it didn't go anywhere."

However another trader said GMAC and ResCap "continue to do a little better," with the ResCap 6 7/8% notes due 2015 up ½ point at 78 bid, 79 offered, and the GMAC 8s up 1½ points at 91 bid, 91.5 offered.

Another market source saw ResCap's bonds at or slightly below the late levels they had reached on Tuesday, though up from where they had been trading earlier Tuesday, before the financing announcement. ResCap's 6½% notes due 2013, which on Tuesday had moved up to close around 80 from earlier levels at 76, bounced around that 80 level Wednesday, before easing a little to around 78 in the afternoon. Its 6 3/8% notes due 2010 likewise came off their early highs around 81.5 to end just below 81, about unchanged on the day.

The bonds had gotten their boost - as short-lived as it proved to be - on the news that GMAC - the former General Motors Corp.-owned provider of auto and residential loans - is in a position to get as much as $21.4 billion in additional credit from Citigroup, which it can in turn use to expand its already sizable share of both the automotive and the home lending market.

GMAC said in a regulatory filing late Tuesday that Citi, the nation's biggest banking concern, will make $14.4 billion available immediately and could provide as much as $7 billion more if GMAC meets certain conditions. The new agreement replaces a $10 billion asset-backed funding facility that Citi had provided GMAC in August 2006.

An analyst said in a research note Wednesday that it was his understanding that somewhat more than 50% of the total $21 billion would be earmarked for GMAC's lending business, but the remaining amount, probably totaling around $10 billion at the maximum, would be made available to ResCap. He said that while the development is "clearly good news for ResCap in the short-term from a funding perspective," the Minneapolis-based company, estimated to be the ninth-biggest U.S. mortgage lender, still must wrestle with "other issues," including lower-than-desirable levels of loan originations, among other factors.

He warned that Res Cap - which posted $1.15 billion of red ink in the past two quarters as defaults on subprime loans made to borrowers with low credit scores accelerated - could likely see "sizable" additional losses in the third and fourth quarters, and a further downgrade of the company's ratings is possible. Moody's Investors Service and Fitch Ratings both consider ResCap's bonds as high junk, at Ba1 and BB+, respectively, while Standard & Poor's maintains a precariously investment-grade rating of BBB-.

GM gains on GMAC news

The prospect that GMAC could use the fresh capital to grow its market share at a time when some of its competitors are suffering from a capital crunch in the wake of the subprime mortgage business meltdown was seen also giving a boost to the bonds of former parent GM, which still owns 49% of GMAC after its sale of a controlling interest to a private equity consortium last year.

A trader saw the automotive giant's benchmark 8 3/8% notes due 2033 up 1 point at 81.75 bid, 83.75 offered. Another saw the bonds up ½ point at 81.25 bid, 81.75 offered, and for good measure, saw the 7.45% notes due 2031 of GM arch-rival Ford Motor Co. likewise ½ point better, at 75.25 bid, 75.75 offered.

Sirius, XM up on merger expectations

Elsewhere, the bonds of rival satellite broadcast operators Sirius and XM were seen better, along with their shares, after Cowen & Co. analyst Thomas Watts said in a research note that their pending merger deal is now more likely than ever to gain the approval of the Justice Department, which must sign off on the transaction on antitrust grounds before it can go through.

A trader saw Sirius' 9 5/8% notes due 2013 up 1½ points at 97.5 bid, 98.5 offered, while another saw the bonds first trading in a 97.5 bid, 99 offered context, but having firmed and tightened later in the day to around 98 bid, 98.75 offered. Meantime, the second trader saw XM's 9¾% notes due 2014 at 99 bid, "up a tad, but not really a lot."

A market source at another desk also saw those bonds at 99, up from prior levels around 97, while Sirius' paper was up about ½ point at 98 in fairly busy dealings.

Another source had the Sirius bonds up 1¼ point at 98, while the XM issue was unchanged at 98.5.

Watts' assessment about the government's likely willingness to overlook antitrust objections and clear the merger between the only two commercial satellite radio broadcasters, now that the companies have provided DOJ with required information, echoes similar sentiments expressed last week by RBC Capital Markets Corp. analyst David Bank, who predicted that Justice will likely make its antitrust ruling within 30 to 60 days - and he expects the feds to give the planned merger a green light.

Primedia better despite Deutsche downgrade

Among other media names, a trader saw Primedia's 8% notes due 2013 up 2 points at 105.5 bid, 106.5 offered.

The bonds shrugged off a more than 10% fall in the company's New York Stock Exchange-traded shares to $13.01 on almost four times the usual volume, which followed a downgrade of its equity by Deutsche Bank Securities. Analyst Paul Ginocchio, in a note to clients, cut his rating on the stock to hold from buy previously, saying the stock is not likely to rise sufficiently to support the higher rating.

However, the analyst still had some positive things to say about Primedia, which among other things publishes free weekly apartment guides in many markets. He said that despite the downgrade, "our belief has not changed that Apartment Guides should benefit as the total number of apartment units rises, along with the vacancy rate, as the fallout from the housing bubble continues,"

Calpine gets clocked

On the downside, Calpine's bonds were seen sliding precipitously. A trader said that the name "looked like it was down pretty good today," quoting its 8½% notes due 2008 plunging to 99 bid, 101 offered from 108 bid, 110 offered previously.

Another trader saw the 8½% 2011s down 5 points at 99 bid, par offered.

A market source saw those bonds down almost 5 points at 99.25 bid, while its 8½% notes due 2008 were likewise down more than 5 points at 99.5.

Other traders echoed that market, and one noted that the debt had lost 8 points since Monday. Another source pegged the 8½% notes due 2008 at 98.

One trader, in giving potential reasons for the day's decline, said he heard the power producer's EBITDA expectations had been lowered, which could affect recovery levels.

Rosetta Resources Inc., which purchased Calpine's oil and gas businesses, asked the bankruptcy court overseeing Calpine's case, to dismiss the fraudulent conveyance charges against it. Rosetta said that, as the charges would demand recovery for damages, the case was baseless since Calpine has said it will give its creditors full repayment, including interest.

Junk indexes are mixed

Overall, a trader saw the widely followed CDX index of junk bond performance unchanged at 943/4-95, although he said that "spreadwise, it gained versus governments," since the 5-year Treasury issue was down about ¼ point. Among other indexes, the Banc of America Securities High Yield Broad Market Index was up 0.14% on the day, with a year-to-date gain of 1.24%. The KDP High Yield Daily Index was off 0.08 on the day to 78.42, while the yield widened by 1 basis point to 8.29%

Primary quiet

Meanwhile the primary market once again produced no news during the midweek session.

One market observer mentioned the Rosh Hashanah holidays, which will significantly thin the capital markets ranks, and the Federal Reserve meeting on Tuesday.

In all likelihood things will remain on hold pending those events, the source said.

Wednesday's big news had to do with the $300 billion-plus of risk overhang that remains on underwriters' books as hung bridge loans resulting from bonds that could not be placed and leveraged loans that could not be syndicated since the downturn of the credit markets in late June.

Sources told Prospect News that approximately $1 billion of the Allison Transmission term loan was priced at 96.00 with 60 days of downside trading protection.

The high yield primary market remained quiet on Wednesday, however.

Sources told Prospect News that the underwriter is "quietly marketing" the Compucom Systems Inc. $210 million offering of eight-year senior subordinated notes (B3/B-), although as of late Wednesday the deal had not been officially launched.

The offering is being led by Bear Stearns.

Proceeds will be used to help fund the acquisition of the Dallas-based technology services company by Court Square Capital Partners from Platinum Equity.

Allison loan at 96

The leverage markets were buzzing Wednesday morning with the news about the Allison Transmission term loan.

Underwriters priced approximately $1 billion of the hung bridge loan backing the LBO of Allison Transmission at 96, according to market sources.

The sale leaves approximately $2 billion of the postponed $3.1 billion term loan on the underwriters' balance sheets.

In return for participating at that price investors were granted 60 days of downside trading price protection.

One source said that the call protection kicks in only if the underwriters sell some or all of the remainder of the loan.

In late July Allison Transmission postponed its $3.5 billion credit facility (B1/BB-) and a $1.1 billion two-part senior notes offering (Caa1) due to poor market conditions.

Citigroup, Lehman Brothers and Merrill Lynch were leading the financing.

Sources said that nine investors participated in the deal.

An investor said that hedge funds, real money accounts and a few banks participated.

One observer commented that the high yield mutual funds have seen inflows over the past two weeks, and suggested that some of that cash likely flowed into Allison.

Sources in both the high yield bond market and the leveraged loan market commented that although the deal represents but a small fraction of the $300 billion-plus risk overhang on the balance sheets of the investment banks the Allison term loan news is a very favorable development.

Stephanie. N. Rotondo contributed to this report

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