ResCap retreats on liquidity worries; new deals hang around issue; GM, Ford little moved on poor sales

By Paul Deckelman and Paul A. Harris

New York, June 3 - Residential Capital LLC's bonds were seen down around 2 points across the board, even as its immediate corporate parent, GMAC LLC, and the latter's 51% owner Cerberus Capital Management, said in a regulatory filing that they would provide the struggling Minneapolis-based mortgage lender almost $3 billion in fresh cash and credit to enable it to continue meeting its obligations and stave off default.

Bonds of GMAC's other part-owner, General Motors Corp., and the latter's domestic arch-rival, Ford Motor Co., were seen only modestly lower despite terrible May sales numbers reported by both carmakers, particularly in the once-lucrative area of pickup trucks and sport-utility vehicles.

After Monday's busy session, Tuesday's primary market had a lackluster, anticlimactic feel to it. However, Cenveo Corp. took to the road to begin marketing its $175 million eight-year offering, which could price by the end of the week, syndicate sources said.

Among the new deals that came to market on Monday, traders saw all three of the issues - for Ply Gem Industries Inc., Scientific Games International Inc. and Iron Mountain Inc. - not venturing far from their respective issue prices.

Market indicators point lower

Back among established issues, a trader in a buy-side shop, speaking just after the Tuesday close, saw the broad high-yield market "mixed."

"There were pockets of strength," the buy-sider said, citing the home building sector as an example.

However, this source added, the automotive sector, which tends to dominate the indexes, remains heavy.

Meanwhile a senior high-yield syndicate official said that the indexes were down ½ point and cash was down ¼ point.

"The market was pretty volatile with all of the financial news around Lehman," the banker said, referring to Lehman Brothers Holdings Inc., shares of which fell more than 9.5% on concerns about the investment bank's liquidity, and reports that it will seek to raise as much as $4 billion via a sale of stock.

A trader said the widely followed CDX junk bond performance index was down 3/8 point Tuesday, quoting it at 96 ¼ bid, 96 ¾ offered. The KDP High Yield Daily Index meantime fell 12 basis points to 75.37, while its yield widened by 3 bps to 9.34%.

In the broader market, advancing issues again trailed decliners by nearly a five-to-four margin. Activity, represented by dollar volume levels, rose nearly 36% from Monday's levels.

A trader said that he saw "decent activity" when the market opened in the morning, though after that, "things kind of quieted down in the afternoon."

ResCap off on liquidity worries

Residential Capital's bonds were seen lower, even as its direct and indirect owners said they would step forward once again - for the fourth time in two years - to keep the problem-plagued company afloat.

A market source saw ResCap's 8 7/8% notes due 2015 down 2 points at 49 bid, while its 6 3/8% notes due 2010 were also seen down a deuce in round-lot trading to 52, from prior large-block trades at the end of last week around 54. However, that level was actually up from the smaller trades around 50 which had been seen late Monday.

A trader saw its 6½% notes due 2013 at 47 bid, down 2 points on the session, but said he "didn't see a lot of ResCap activity," suggesting that "maybe a lot of people are still tied up with the [bond exchange]offer," which was scheduled to expire a minute before midnight ET on Tuesday evening.

ResCap is in the process of trying to take out as much of $14 billion principal amount of its existing notes maturing from later this year through 2015 as it can by tendering for one issue in cash and offering new longer maturity debt, at a steep discount to the existing bonds' face value, for the rest.

Another trader saw its 8 1/8% notes slated to come due in November at 89 bid, 92 offered, which he called down 2 points on the day, saying it wasn't more because it's "a pretty short" issue. He meantime heard ResCap's 6 3/8% notes due 2013 quoted at 45 bid, 48 offered.

A trader saw the 6½% notes due 2010 very active. He said that while the bonds had traded virtually all day in a 50-52 range, down from the 53.5-54.5 range at which they had traded last week, a late big-block trade pushed the bonds back up to 55.60 bid.

Another trader, however, said that despite the dramatic news, he "really hasn't seen very much" of ResCap.

ResCap's bonds were seen generally lower amid apparent investor concern that GMAC and its majority owner, Cerberus, have been forced to rescue their problem child - yet again - as well as worries that the latest infusion of cash and credit still may not prove to be enough. In fact, ResCap said as much in its 8-K Securities and Exchange Commission filing outlining the emergency funding, warning that "if liquidity needs are greater [than the new financing], ResCap may be unable to independently satisfy its near-term liquidity requirements."

Under the complicated emergency bailout package - cobbled together by GMAC and Cerberus after ResCap projected that it would come up some $2 billion short in meeting this month's obligations - Cerberus, the New York-based private equity firm which bought 51% of ResCap owner GMAC back in 2006, when ResCap was seen as an important profit center for GMAC rather than a constant drain on its finances, will provide ResCap with more than $1 billion of up-front cash. It will do so by buying as much as $950 million of performing and non-performing mortgages and certain other assets, as well as paying $475 million, including $225 million of immediate cash, for ResCap's model-home assets.

GMAC will pony up $250 million of cash as the initial payment for ResCap's resort-finance business, or slightly less than 75% of the operation's net book value. The final purchase price will be determined at a later date.

In addition to that cash, GMAC - which is already a ResCap lender through an existing $750 million credit facility - will increase that credit line by another $450 million to $1.2 billion total, provide another $500 million receivables-backed credit facility for ResCap, and will exchange $250 million of outstanding ResCap notes due this month that it holds for new preferred units rather than for cash.

GMAC is also working with ResCap and the latter's bank lenders on refinancing certain outstanding credit lines. It has meantime also been in separate talks with ResCap and lenders on a new $3.5 billion credit facility, with the first $750 million of borrowings to possibly be guaranteed by Cerberus and GMAC's 49% owner, GM.

GMAC eases

As for GMAC's own bonds, such as its widely traded 8% paper due 2031, a trader said that he saw them perhaps half a point to a point off during the day. He said there was "nothing really crazy in cash-land" going on - "it seems that whenever something is really negative, CDS [credit-default swaps] is the market that takes off. We [the cash bond market] usually lag a little."

Another trader said that the 8s "lost just a little - not very much." He pegged them at 74 bid, 75 offered, down ½ point.

Among some of the more near-term GMAC issues, market source saw its 6 7/8% notes due 2011 down more than 1½ points to around the 81.75 level. However, its 6 7/8% notes due 2012 finished at 80.5, up a point.

GM, Ford not much dented by sales data

A trader said that GM's bonds "kind of softened up early in the day" ahead of the May vehicle sales numbers. "Things kind of quieted down" after the numbers came out. He said he "had not seen a ton" of activity in the automotive bonds.

A trader saw GM's benchmark 8 3/8% bonds due 2033 down ¼ point to 67 bid, 67.5 bid, while Ford's 7.45% bonds due 2031 were ½ point lower at 66 bid, 66.5 offered.

At another desk, the GM bonds were called down a point at 67 bid, 68 offered, while Ford was quoted down ½ point at 67 bid, 68 offered. But another source saw the GM issue actually more than ½ point in fairly active trading, going home just north of 68 bid.

To the surprise of no one, the big U.S.-based carmakers reported a sharp slide in May sales versus year-ago levels, as GM, Ford and Chrysler continue to lose domestic market share to Japanese upstarts Toyota, Honda and Nissan. GM's consolidated domestic sales tumbled by 30%, Ford fell 18% and Chrysler lost 25%, mostly as sales of pickups and SUV's dwindled in the face of the soaring gas crisis.

GM remains the top domestic seller, but Number-Two Toyota - which grabbed that second spot away from longtime holder Ford last year - is narrowing the gap. Chrysler - which had long tailgated Number Three Ford in the sales rankings - suffered the first-time embarrassment of being pushed out of the Number-Four spot by Honda.

Ahead of the release of the sales data, GM announced that it would close four truck plants - in Ontario, Mexico, Ohio and Wisconsin - while adding shifts at several plants that produce more popular smaller cars. GM said it is also considering trying to sell its once powerful but more recently unpopular Hummer line.

American Axle weak

News of GM's cutback in truck production is not good news for companies such as American Axle & Manufacturing Holdings Inc., which produces truck axles - and which sells most of its output to GM. A trader saw the Detroit company's 7 7/8% notes due 2017 down 2 points at 83 bid, 84 offered.

Another trader saw the bonds open the day at 84 and go home at 83, down a point on the day and down 2 or 3 points from the levels around 85-86 at which those bonds traded last week.

New bonds stay around issue price

One of the traders said that "one of the main focuses" in Tuesday's junk market has been on the new issues which priced in Monday - Scientific Games, Iron Mountain and Ply Gem Industries.

He saw Scientific Games' new 7 7/8% senior subordinated notes due 2016 "kinda hanging around" a 100.375-100.625 range, where he said there was "a lot of paper changing hands there, especially for a $200 million deal." The New York-based producer of lottery and pari-mutuel gaming systems priced that amount of the bonds on Monday at par.

Iron Mountain's new 8% senior subordinated notes due 2020, which priced at par on Monday, were seen by a trader to be "hanging around issue" at par bid, 100.25 offered, although he said he saw those levels fairly early in the day and did not see any trades after that.

A trader saw Ply Gem's 11¾% secured notes due 2012, which priced at 99.072 on Monday, also anchored to that issue price at 99 bid, 99.125 or 99.25 offered.

A second trader said that the Cary, N.C.-based building products manufacturer's new bonds "didn't move much," seeing them straddling their issue price at 98.5 bid, 99.25 offered.

"Today was new-issue day," yet another trader said, "not because they priced today, but the majority of the activity that I found was focused on the new issues."

He saw Ply Gem's new bonds get as good as 99.25 bid, "but then they got softer later in the day" to end at 98.5 bid, 99.25 offered. "I think that support is a little easier. I definitely sense that they were a little weaker - that bid faded."

Scientific Games' bonds traded up to the 100.5 level, he said, before going out at 100.25 bid, 100.5 offered.

And Boston-based document storage, handling and disposal company Iron Mountain's bonds also stayed within a narrow range, firming to 100.375 before finishing the day at par bid - their Wednesday pricing level - and 100.25 offered.

Recent Moog, Ford Credit bonds outperform

The trader saw Moog Inc.'s 7¼% notes due 2018 at 101.125 bid, 101.375 offered, solidly up from the par level at which the East Aurora, N.Y.-based precision control systems manufacturer priced its $200 million offering on May 28.

"I'm surprised that it's still over 101," he enthused, adding that the Moog issue is "a great-performing bond." The issue "came at par a week ago, and has hung in there through weak equity and everything that's taken place in our market since it was issued. I would have to say that it's been one of the best-performing new issues."

He also had praise for the performance of Ford Motor Credit Corp.'s 12% notes due 2015. Ford's Dearborn, Mich.-based auto loan financing arm brought the $1.1 billion mega-deal to market at 98.834 on April 28.

"They had been trading in the 102-103 range, and now they're trading in the par-101 range - but again, with the market coming in and all of the negatives" seen since then, "I'm surprised that they haven't dipped below par." He quoted them going out at par bid, 100.75 offered.

Among other recently priced issues, the trader saw Cablevision Systems Corp.'s 8½% notes due 2015 get as good as 100.375 bid, before ending at par bid, 100.25 offered. The Bethpage, N.Y.-based cable system operator and professional sports team and arena owner priced $500 million of the bonds at par on May 28.

All quiet in the primary

On the heels of a Monday session which saw three issuers raise a combined total of just under $1.2 billion of proceeds - a big day by 2008 standards - the Tuesday new issue market was dead quiet.

All three of Monday's deals - Ply Gem Industries, Inc.'s new11¾% senior secured notes due 2013, Iron Mountain Inc.'s 8% senior subordinated notes due 2020 and Scientific Games International Inc.'s 7 7/8% senior subordinated notes due 2016 - went alright, but have not traded all that well, said a trader from a high-yield mutual fund.

"There's a lot of chop on the financial side," the trader remarked, also alluding to the concerns surrounding Lehman Brothers.

"The technicals are a little tight. The autos are sucking wind. So it seems like we're weak.

"If you're trying to put money together in the secondary market, right now, it's not easy."

Meanwhile sources told Prospect News on Tuesday that the Ply Gem bond deal had been driven by reverse inquiry which emanated almost entirely from bank loan accounts, with relatively little play from high-yield accounts.

"It was loan buyers rolling out of the loan into the bonds," a trader asserted.

Through the window

A senior high-yield syndicate official, who professed knowledge of a drive-by deal to be announced on Wednesday, said that the primary market activity seen thus far during the Spring of 2008 - characterized by issuers bringing a.m.-to-p.m. drive-bys or deals which are in the market for one or two days, and practically no forward calendar - is apt to continue.

"That will likely be the norm given how volatile the markets are, and how the windows open and close," the banker said.

"People are going to be highly opportunistic."

This banker contended that there remains a lot of cash to be put to work in the junk market.

Meantime there is only one deal on the forward calendar.

Cenveo Corp. began a brief roadshow on Tuesday for its $175 million offering of eight-year senior unsecured notes (expected B2/confirmed BB-).

The bridge refinancing deal goes to Boston on Wednesday and to New York on Thursday, and is expected to price by the end of the week.

Lehman Brothers has the books.

And although on Monday the market buzzed with speculation regarding Masonite International Corp., which is reportedly looking to term out bank debt by means of a bond deal via Deutsche Bank, no information surfaced on Tuesday.

Earlier in the week Prospect News reported that the company may be facing difficulties complying with its bank loan covenants.

On Tuesday market sources pointed to the above-mentioned Ply Gem deal, in addition to recent secured notes issues from Hovnanian Enterprises, Inc. and Nortek, Inc., and said that it would be no surprise were Masonite to come.

"A rescue deal makes sense, given that the Nortek, Hovnanian and Ply Gem got deals done," one banker said.

"We're pitching every stressed company with the same idea."

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