GM, Ford bonds up; Calpine falls on default notice news; Denbury Resources notes price

By Paul Deckelman and Paul A. Harris

New York, Dec. 7 - Bonds of General Motors Corp. and its arch-rival Ford Motor Co. were both seen higher Wednesday, reacting to separate pieces of news - GM's up on reports the troubled automotive giant and large holder Kirk Kerkorian are in talks to give the billionaire financier representation on GM's board, which could in turn lead to changes in the way the carmaker does business - not necessarily a bad thing, from an investor's point of view. The bonds of GM's financial arm, General Motors Acceptance Corp., were also seen higher after several days on the decline following Wells Fargo & Co.'s abrupt dismissal of the idea of it possibly buying a major stake in GMAC.

Ford, meantime was up in apparent reaction to news reports that the Number-Two domestic carmaker plans to eliminate as many as 30,000 jobs over the next several years, and to close a number of plants, as it downsizes its North American operations to better bring them in line with its diminished sales base.

On the downside, Calpine Corp.'s already weakened bonds fell further across the board, as the problem-plagued San Jose, Calif.-based power generating company was hit with a warning that it must immediately repay nearly $312 million of improperly spent asset-sale proceeds - or face a default on $3 billion of second-lien debt.

Overall, one source marked the broad high-yield market weaker by an eighth of a point or more on Wednesday, trailing weaker Treasuries as well as lower stock prices.

The source also said there was profit taking, and made note of the fact that the high-yield new issue calendar for deals that are expected to price in the run-up to the holidays - $8.5 billion at Wednesday's close - has become truly formidable.

In the primary sphere, Denbury Resources Inc. was heard to have successfully priced a quickly-shopped "drive-by" offering of 10-year notes, while Edgen Acquisition Corp. also brought to market a smallish add-on offering of 2011 bonds.

Denbury drives through

Prior to the Wednesday close the biggest issue came from Texas energy exploration and production company Denbury Resources.

In a drive-by, Denbury priced a $150 million issue of 10-year senior subordinated notes (B2/B+) at par to yield 7½%.

The yield came on top of price talk, and late in the day a buy-side source spotted the new Denbury 7½% notes trading at 101.375 bid in the secondary market.

JP Morgan ran the books for the oil property acquisition funding deal.

Edgen completes add-on

Also in an energy sector-related trade, Edgen Acquisition Corp., which provides infrastructure to the oil and gas industry, priced a $31 million add-on to its 9 7/8% senior secured notes due Feb. 1, 2011 (existing ratings B3/CCC+).

The Jefferies & Co.-led deal priced at 95.50, on top of the price talk, resulting in an 11.04% yield to maturity.

Proceeds will be used to finance the acquisition of Murray International Metals Ltd. U.S. and to repay a portion of Edgen's revolving credit facility.

The original $105 million issue priced at par on Jan. 25, 2005. The total issue size following the add-on is $136 million.

In a related transaction Murray International Metals Ltd. (MIM) is currently in the market with a $125 million offering of five-year senior secured floating-rate notes, also via Jefferies.

Galaxy Casino a blowout

As Prospect News went to press Wednesday night informed sources said that terms were imminent on an upsized, multiple-times oversubscribed Galaxy Casino $600 million deal via Merrill Lynch & Co. and Morgan Stanley.

The two-part deal, which was upsized from $500 million, includes $350 million to $400 million of seven-year fixed-rate notes. On Wednesday price talk was revised to 9 7/8% to 10% from 10% area.

Meanwhile the Macau-based casino was in the market with $200 million to $250 million of five-year floating-rate notes, at Libor plus 500 basis points.

At press time, however, no terms had been heard.

More to come

Word of two investor roadshows for 2005 year-end deals circulated during the session.

Majestic Star Casino began a roadshow Wednesday for a $285 million three-part bond transaction via Jefferies.

Majestic Star Casino, LLC plans to sell $200 million of senior notes due Jan. 15, 2011.

The same issuer plans to price a $30 million add-on to its 9½% senior secured notes due Oct. 15, 2010 (the original $260 million issue priced at par in September 2003).

Meanwhile Majestic Holdco, LLC, the parent, plans to sell $55 million proceeds of senior discount notes due Oct. 15, 2011.

Also VeraSun Energy Corp. expects to price a $200 million offering of seven-year senior secured notes (B-) early next week following the conclusion its roadshow.

Lehman Brothers and Morgan Stanley are joint bookrunners for the debt refinancing and construction deal from the Brookings, S.D.-based ethanol producer.

An eye toward the league tables?

A buy-side source suggested that the massive buildup of the year-end new issue calendar is being driven primarily by underwriters' quests for the highest possible league table rankings.

The source also noted that last week AMG Data Services reported a $225 million inflow to high yield mutual funds, the first positive flow since the week ending Sept. 7.

Although it is only one positive among numerous negative flows, it might nonetheless be the source of encouragement to the sell-side as the year wanes, the source suggested.

Nor is the buildup over, the buy-sider said, adding that one deal that is expected to show up soon is electricity producer Mirant's $850 million, possibly via JP Morgan, part of the company's financing to exit Chapter 11.

Majestic Star up in trading

Back in the secondary arena, Majestic Star Casino's outstanding 9½% notes due 2010 were being quoted up as much as four points to 102 bid, pushed up by the news of its upcoming new bond offering.

GM gains

Back among established issues without new-deal connections, GM's bonds were seen up a point or more, with a trader quoting the company's benchmark 8 3/8% notes due 2033 a point better at 69 bid, 70 offered, while another trader saw the bonds at 69.25 bid, 70 offered, up 1¼ points on the day.

A market source saw GM's 7 1/8% notes due 2013 a point better at 70.5 bid, although a source at another shop quoted those bonds two points higher on the day at 71 bid.

The GM bonds rose, one of the traders said, "on the news that Jay York will be joining the board," although it might be a little premature to say that so flatly - at last report, GM remained in negotiations about board representation with the Kerkorian-controlled Tracinda Corp., owner of 9.9% of the company's shares. Should those talks lead to Kerkorian being able to name a member to the board, one name that has surfaced is that of Jerome B. (Jay) York, formerly chief financial officer at Chrysler Corp., before it became part of DaimlerChrysler AG and also formerly the CFO at IBM. His tenure at both was characterized by rigorous cost-cutting efforts and other actions to turn the companies' fortunes around.

York - a former vice president of Tracinda - worked with Kerkorian during the latter's failed effort to take control of Chrysler a decade ago.

The bonds rose even though there has been some commentary in the media that giving a Tracinda representative a seat might result in a push to undertake actions that would benefit shareholders like Kerkorian, possibly at the expense of bondholders and other creditors. The octogenarian investor has seen the value of his nearly 10% stake in GM dwindle by millions of dollars as the shares have fallen from the $31 level at which he bought in earlier in the year to current levels just above $24. However, given York's history as a cost-cutter in his past CFO positions, a more likely scenario might be that he would push for further plant closings and overhead cuts at GM, above those already recently announced by the company.

GMAC also better

While GM's bonds were up, so were the notes of GMAC, with a trader at one shop quoting its 8% notes due 2031 half a point better at 94 bid, 94.5 offered, while a source at another shop saw GMAC's 6 7/8% notes due 2012 half a point better as well, at 88. However, another trader saw the '31s as unchanged at 94 bid, 95 offered, while yet another trader saw GMAC easier by a point across the board, the '31 bonds at 93 bid, 94 offered, and the '12s at 88 bid, 89 offered.

All of that would represent a steadying trend in the GMAC bonds, which had been in retreat over the past several sessions.

CreditSights Inc. sounded a cautiously positive tone in a morning research note, saying that "the reaction to the past week's series of headline setbacks" - including the news that at least two large potential buyers for a controlling stake in GMAC are not interested - "gets the market back to handicapping what GMAC could do on Plan A, B, or C and the various permutations along the chain. The good news is they have options."

GM, in hopes of lowering GMAC's borrowing costs by transferring control of the currently wholly owned subsidiary to some deep-pocketed investment grade-rated financial company, said several weeks ago that it would seek to sell a controlling stake in GMAC, a deal which additionally could net the carmaker anywhere from $10 billion to $15 billion in proceeds, at a time when its revenues are depressed by lower U.S. vehicle sales.

However, within the past week, two big potential buyers - Bank of America and Wells Fargo & Co. - have specifically said they do not wish to buy into GMAC, which has caused the unit's bonds to fall from their previous levels at or above par, and has caused a widening out of the cost of default protection for GMAC debt in the credit default swaps market, a key barometer of negative investor sentiment about the company.

However, wrote analyst Glenn Reynolds, "disappointments on the 'short list' do not necessarily foreshadow a yanked deal. If there is one thing that GMAC has shown over time, it is structural flexibility and a lot of strategic resilience."

GM, he continued, "may simply have to step back from the optimal solution and go for the best available alternative that still optimizes GM's and GMAC's goals."

Reynolds further said that "the next leg of the deal journey might entail some timeline disappointments and more angst as GMAC explores more possible outcomes." But he concluded that "good asset quality and liquidity options can make for some other creative solutions."

Ford higher

Elsewhere in the automotive sector, a trader saw Ford's benchmark 7.45% notes due 2031 up ¾ point at 71.5 bid, 72.5 offered, while the company's Ford Motor Credit Corp. financing arm's 7% notes due 2013 were unchanged at 87.5 bid, 88.25 offered. At another shop, the '31s were seen up a full point at that 71.5 level.

The Detroit News reported that Ford was presenting to its directors a turnaround plan for its struggling North American operations, calling for cutting 25,000 to 30,000 hourly jobs over the next five years and closing as many as 10 manufacturing plants. It attributed its information to unidentified "people familiar with the plan." Details of which specific plants are to be shuttered have not been finalized yet but are expected to be announced on Jan. 23.

The hourly wage cuts come on top the elimination of 2,750 salaried jobs company wide this year, with another 4,000 such white-collar positions to be slashed in the 2006 first quarter. Number-Two domestic carmaker Ford is also expected to announce the departure of as many as seven top executives from throughout the company in the coming weeks, the newspaper said.

The coming cuts contained in Ford's "Way Forward" strategy, as the plan has been dubbed, are deeper than many observers had expected, and deeper also than the 20,000 North American job-cuts that chairman Bill Ford Jr. had envisioned as being needed several years ago when he took the helm of the company founded a century ago by his great-grandfather, Henry Ford. They follow the similar downsizing plan recently announced by GM, which calls for cutting 30,000 hourly jobs in the next three years and the closure of nine manufacturing facilities.

Like its larger arch-rival, the once-profitable Ford has recently fallen on hard times, caught in a vise between escalating healthcare costs for its employees and retirees and other labor-related expenses on the one-hand, and higher costs for such essential raw materials as steel, petroleum-based plastics and energy. At the same time, Ford and GM have seen their sales falling, particularly those of gas-guzzling sport utility vehicles and pick-up trucks heretofore popular products whose appeal to motorists has fallen as gasoline prices have climbed. After peaking in 1999 and 2000 above four million units, Ford's U.S. vehicle sales have gradually come down to the 3.3 million mark in 2004, and this year figures to be even worse when the final figures are tallied early next year. Ford's sales - artificially hyped over the summer by heavy customer incentives the company offered in response to GM's "employee discount for everyone plan" - slid badly when the incentives ended, nosediving 23% in October from year-earlier levels, and falling another 18% in November. The combined share of the U.S. vehicle market held by the company's eponymous flagship Ford brand and by that nameplate's more upscale corporate cousins, Mercury and Lincoln, has slid from about 25% a decade ago to 17%, with most of that loss going to the Japanese carmakers and their U.S.-based transplant operations.

The Dearborn, Mich.-based automotive giant has in the past considered killing off the underperforming Mercury, which sits uncomfortably between Lincoln's high-end offering and Ford's more economical line - just as GM pulled the plug on its mid-range Oldsmobile brand and DaimlerChrysler AG junked the Plymouth nameplate - but finally decided against it, hoping to re-energize the brand with newer, more youth-oriented models.

As sales have fallen, Ford's North American revenues have fallen in tandem with that slide, and along with them, profits. The company has racked up $2.2 billion of pre-tax losses from its North American operations in the first nine months of 2005 versus a $1.8 billion profit in the comparable 2004 period. While consolidated company-wide earnings for this year are expected to come in at about $2.5 billion, after taxes, according to most Wall Street estimates, the profit comes from Ford's overseas operations and from Ford Motor Credit - not from the sale of cars and trucks in the U.S.

CSK slips on earnings

Also in the automotive area, a trader saw CSK Auto Inc.'s 7% notes down two points at 92 bid, although trader pegged the bonds at 93.5 and called them unchanged. The Phoenix, Ariz.-based auto parts retailer reported that net earnings in the fiscal third quarter ended in October dipped to $10.5 million (24 cents per share), a 14% drop from $12.2 million (27 cents per share) a year earlier. An allowance for customer product returns cut into profit by $1.5 million, or two cents per share.

Calpine drops on more trouble

Outside of the automotive names, Calpine "was in the crapper," as one trader colorfully put it, its bonds down anywhere from two to three points, on the news that Wilmington Trust Co., the trustee for Calpine's second-lien debt, served notice to Calpine that it had to immediately pay back $311.8 million, plus accrued interest, to an escrow account holding the remaining proceedings of Calpine's $1.05 billion sale of its natural gas reserves this past summer. A court ruled that the money had been improperly spent, although it gave Calpine until Jan 22 to make repayment. Calpine - which had sought 90 days in which to repay the funds, or until early March, and which is appealing that court decision, went to court to seek a temporary restraining order to bar issuance of any default notice.

The trader saw Calpine's 8½% notes due 2008 fall to 24 bid, 25 offered from 27 bid, 28 offered, while its 8½% notes due 2011 were likewise down several points at 21 bid.

Even some of the company's shorter bonds, "which have been holding up in the 30s, because there are big shorts in them," were lower on the day, he said, with the 7 5/8% notes due 2006 and the 7¾% notes due 2009 each down three points, at 35 bid, 37 offered and 32 bid, 34 offered, respectively.

A trader at another desk agreed that Calpine was lower, with the 2008 81/2s down two points to that 24 bid, 25 offered level, and its 9 7/8% notes due 2011 down a deuce at 75.25 bid, 76.25 offered.

Another secured issue, the 8¾% notes due 2013, fell two points to 73.5 bid, 74.5 offered.

"They were down across the board," a market source said, with "even the secured issues off," although he saw the 9 5/8% notes due 2014 as the rare exception to the rule, firming half a point to 102.5. More typical, he said, were the 10½% notes due 2006, which dipped to 37 bid from 39.5, while Calpine's 8½% notes due 2011 fell to 20 bid from 22.125.

A trader said it was "pretty much all Calpine and GM all day" in dismissing questions about other names - although that trader did see Smurfit Stone Container's 9¼% notes due 2008 down a point at 101 bid, 102 offered, citing news that the company was having problems meeting the terms of its credit facility covenants and was seeking relief by asking its lenders for amendments.

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