Cendant plans billion-dollar bond deal; Delphi bonds gyrate as it asks court to junk GM, union contracts

By Paul Deckelman and Paul A. Harris

New York, March 31 - Cendant Car Rental Group LLC unveiled plans Friday to sell a cool $1 billion dollars of new bonds, with the mega-deal to be divided up into tranches of eight- and 10-year notes. The deal begins marketing to potential investors on Monday.

But with the echo fading from the mid-week burst of issuance - $4.1 billion equivalent, most of it done in drive-bys on Wednesday - the primary market returned to the near-dormant state that pervaded it throughout most of March.

One issue was priced, as Visant Holding Corp. (Jostens Holding)'s 8¾% bonds due December 2013 came at a significant discount.

In the secondary market Friday, Delphi Corp.'s bonds were seen bouncing around in the wake of the company's expected announcement that it had asked the U.S. Bankruptcy Court for the Southern District of New York for permission to void its union contracts covering about 34,000 hourly workers as part of the bankrupt Troy, Mich.-based automotive electronics manufacturer's larger transformation plan. It also sought court approval for rejecting some supply contracts it has with former corporate parent General Motors Corp. - a potential headache that the struggling carmaker doesn't need right now.

In a market otherwise becalmed by the end of the quarter - a trader suggested that all of the end-of-quarter transactions had been carried out over the previous few sessions and that folks were simply laying low until the new quarter got under way, when many of those "window-dressing" trades will likely be unwound.

GM's own bonds were seen firmer on the session, despite the potential for a ruinous strike by Delphi workers, which would in turn disrupt the steady flow of parts to the Detroit giant, jeopardizing its ability to produce vehicles.

Outside of the automotive sphere, Bally Total Fitness Holding Corp.'s bonds were better as the Chicago-based fitness club operator asked for, and got, more time from its lenders to file its financial reports.

A source on a high-yield syndicate desk marked the broad junk market unchanged to slightly lower on Friday.

Visant at wide end of talk

Friday's sole issue came from class ring company Visant Corp., formerly known as Jostens, Inc.

Visant priced a $350 million issue of 8¾% senior notes due Dec. 1, 2013 (Caa2/expected B-) at 96.005 to yield 9½%, on the wide end of the 9 3/8% area price talk, generating $336 million of proceeds.

Lehman Brothers and Bank of America Securities were joint bookrunners for the dividend-funding and general corporate purposes deal.

Visant was created in October 2004 when Kohlberg Kravis Roberts & Co. LP and affiliates of DLJ Merchant Banking Partners completed transactions which combined the operations of Jostens with Von Hoffmann Holdings Inc., including Von Hoffmann's subsidiary, The Lehigh Press, Inc., and AHC I Acquisition Corp.

A $3.75 billion week

Including Visant's $336 million of proceeds in the tally, the final week of March 2006 came to a close having seen $3.75 billion of dollar-denominated issuance in 10 tranches, stepping up the pace from the previous week's $1.9 billion in eight tranches.

Hence the final week of March was the biggest, in terms of dollar amount of issuance, since the week ending Feb. 3, 2006, which saw $4.1 billion in nine tranches.

Meanwhile the month of March 2006 came to a close having seen slightly more than $10 billion price in 31 dollar-denominated tranches. That's the biggest monthly dollar amount since January's $15.855 billion. However in terms of deal volume March ends in a tie with January, at 31 dollar-denominated tranches apiece.

At Friday's close, year-to-date issuance totaled $31.56 billion in 83 tranches, rendering 2006 slightly ahead of 2005 on a year-over-year basis in terms of the dollar amount of issuance. By the March 31, 2005 close the market had seen $31.27 billion of issuance. However in terms of deal volume 2006, which saw 83 tranches price by Friday's close, pales in comparison to 2005, during which 120 tranches priced by the end of the March 31 session.

Cendant/Avis Budget to hit the road

Aside from the terms on Visant's deal the primary market heard about the launch of the Cendant Car Rental Group (Avis Budget) deal on Friday.

The roadshow starts on Monday for the $1 billion two-part offering of senior notes (Ba3/BB-), in eight-year and 10-year tranches.

JP Morgan, Deutsche Bank Securities, Wachovia Securities, Banc of America Securities and Citigroup are joint bookrunners for the debt refinancing.

New York City-based Cendant Car Rental operates the Avis and Budget car rental businesses, and is expected to change its name to Avis Budget Car Rental LLC.

The week ahead

The opening week of April has the primary market poised to see $2.550 billion of expected issuance.

In descending order based upon size the calendar includes:

• Autonation Inc.'s $800 million senior unsecured notes in two tranches (Ba2/BB+/expected BB+): $400 million of eight-year fixed-rate notes due 2014 and $400 million of seven-year floating-rate notes via JP Morgan, Banc of America Securities and Wachovia Securities;

• Burlington Coat Factory Warehouse Corp.'s $500 million in two parts, led by Banc of America Securities, Bear Stearns and Wachovia Securities: a $300 million tranche of eight-year senior notes (B3/CCC+) and a $200 million tranche of 10-year senior subordinated notes (Caa1/CCC+);

• Hughes Network Systems LLC's $375 million of eight-year senior notes (B1/B-) via joint bookrunners Bear Stearns & Co. and Morgan Stanley;

• Multiplan Merger Corp.'s $250 million offering of 10-year senior subordinated notes (Caa1/B-) via Goldman Sachs & Co. and Banc of America Securities;

• Basic Energy Services, Inc.'s $200 million of 10-year senior notes (B1) led by UBS Investment Bank, Banc of America Securities and Lehman Brothers;

• PHI Inc. with $150 million of seven-year senior notes (existing ratings B1/BB-), via UBS; and

• Wood Resources LLC's $75 million offering of seven-year senior secured floating-rate notes (B3/B-), helmed by Jefferies. Those notes were talked Thursday at six-month Libor plus 750 basis points, with the deal expected to price on Monday.

In addition to those dollar-denominated offerings, Vac Finanzierungs GmbH, a financing subsidiary of Hanau, Germany-based Vacuumschmelze, is in the market with a €130 million offering of 10-year senior secured notes (B3/CCC+), via Citigroup.

Finally, JG Wentworth is cross-marketing its $200 million five-year senior secured term loan (B2/B) to both bond and bank loan investors. The paper is expected to trade like a bond, according to one market source. Deutsche Bank Securities has the books for the deal, in which Bear Stearns is also a participant.

Positioning for higher rates

Last Tuesday the Federal Reserve's Federal Open Market Committee lifted its benchmark Fed Funds rate by 25 basis points to 4.75% - the highest that it has been since March 2001.

In the ensuing days Prospect News informally surveyed primary market sources as to whether the language of the FOMC's statement, accompanying the interest rate action, pointed to a likelihood that the Fed would lift the rate by 25 basis points at least one more before concluding its present regime of rate-tightening.

The consensus was "Yes."

On Friday the Prospect News primary market desk asked Bear Stearns high-yield strategist Mike Taylor if it appears that junk investors are getting into position for such an eventuality.

"I believe that some high yield investors are indeed positioning themselves for higher interest rates and shedding some of their riskier credits in anticipation of interest rate-related volatility," Taylor commented in an email message.

Taylor went on to point to the year-to-date performance of the Bear Stearns High Yield Index, which he spotted at 2.8%, and added that in light of the relative strength of high yield there has likely been some profit taking as well.

New deals mostly near par

A trader said the new French Lick Resorts & Casinos 10¾% notes due 2014, which priced late Thursday at par, had firmed slightly to 100.25 bid, 101 offered.

He also saw Newfield Exploration's 6 5/8% notes due 2016 slightly below Wednesday's par issue price, at 99.5 bid, par offered. Host Marriott's 6¾% notes due 2016 were still straddling Wednesday's par issue price, at 99.875 bid, 100.125 offered - the same price seen for Dynegy's 8 3/8% notes due 2016, which had also priced Wednesday at par. Festival Fun Parks' 10 7/8% senior notes due 2014, which had firmed smartly to 101 bid, 101.5 offered on the break after having priced earlier Wednesday at par, were seen having come down off those strong early levels by Friday, falling back to 100.25 bid, 101 offered.

Delphi mixed

Back among the established issues, traders were quoting Delphi's bonds all over the place within a relatively narrow range - some up, some down and some little changed - as market participants sought to analyze the company's not-unexpected announcement. GM bonds and those of its General Motors Acceptance Corp. financing unit apparently shrugged off the bad news from Delphi to instead think about the positive, including the possibility that GM is getting nearer to its state goal of selling a controlling stake in GMAC.

A trader saw Delphi's bonds up about half a point to a full point on the day's news, quoting its 6.55% notes due 2006 a point better at 61.5 bid, 62.5 offered.

Another trader, however, saw those notes at around that same level - 61.25 bid, 62.25 offered - but called that down 1¾ points on the session. He saw Delphi's7 1/8% notes due 2029 at 61.5 bid, 62.5 offered, which he called down ¾ point on the day.

A market source at another desk called Delphi's bonds a mixed bag, with its 6.55s a quarter point lower at 60.75 and its 6½% notes due 2013 down 1½ points at 59 and its 6½% 2009 bonds off some three points on the day to 60 bid - but also with its 7 1/8s up ¾ point to 62.25.

Besides asking the court to let it junk existing contracts with the United Auto Workers union and two other labor groups, Delphi also asked the court to allow it to reject certain of its contracts to supply components to its former corporate parent and still its largest customer, GM.

GM for its part said that it was "disappointed" with its problem child's move to reject certain supply contracts with GM but "remains committed to working with Delphi and its unions to reach a consensual agreement."

Delphi - which sought Chapter 11 protection from its junk bond holders and other creditors last October - has long contended that the labor cost structure it inherited from GM when it was spun off in 1999, including union contracts more suited to an automaker like GM than an auto parts company, makes its operations unprofitable.

After it entered bankruptcy, Delphi began talks with the UAW and GM in the hopes of getting some relief from its heavy labor costs. It had previously threatened to go to court to seek authority to reject its contracts, but each time had extended its self-imposed deadlines in order to keep talking. But this time, there was no extension, as Thursday's deadline for having a deal in place came and went. However, Delphi said that it "remains committed to finding a consensual resolution to our issues and intends to continue to discuss with our unions and GM ways to become competitive in our U.S. operations."

The move to scrap the union pacts and its unprofitable GM supply contracts is part of a larger "transformation plan" the company outlined on Friday, aimed at getting Delphi out of bankruptcy by the first half of 2007. Other features of the plan include focusing on higher-margin products such as electronics, navigation and safety. It identified just eight of its 29 U.S. plants as core operations that it plans to hang on to - two each in Ohio, Mississippi and upstate New York, and one each in Michigan and Indiana.

The other 21 plants would ideally be sold or, lacking that, wound down and closed. Products due to be phased out include brake and chassis systems, cockpits and instrument panels, and door modules and latches, among others. All told, 20,000 hourly wage jobs would be slated for elimination, about two-thirds of its hourly U.S. work force, along with about 8,500 salaried jobs worldwide, or about a quarter of that workforce.

Hourly and salaried U.S. defined-benefit pension plans would be retained, but would be frozen by end of this year.

Delphi estimates that wages and benefits for its hourly workers cost on average about $75 per hour per employee, with $27 of that as straight cash salary. After it filed for bankruptcy, Delphi sought to immediately lower wages to around $12.50 per hour, but the UAW rejected that move, and warned that a strike would be likely if Delphi persisted. Delphi backed off, but continued to float the idea of a wage cut during the months of talks that followed.

In mid-March, Delphi presented the union with a new proposal which would lower the hourly wage to $16.50 in two stages - first an immediate reduction to $22 per hour, which would be in effect through September 2007, then the final cut to $16.50, which would be accompanied by a $50,000 "wage buydown." The unions didn't think that plan was much better than the first idea, and rejected it this past week, with the president of the UAW declaring that "today it appears there is no basis for continuing discussions," and warning that if the court gives Delphi the power to unilaterally impose its lower wage schedule, "it appears that it will be impossible to avoid a long strike."

For GM, the danger from Delphi's course is two-fold: any kind of prolonged strike would play havoc with the auto giant's production operations just when it is trying to get back on its feet after losing more than $10 billion last year. Some observers speculated that the once-mighty GM might eventually be forced into its own Chapter 11 filing. At the same time, even if there is no strike, Delphi's move to void its supply contracts could leave GM in the same leaky boat.

Delphi's chief executive officer, Robert S. Miller, said in the company's statement that "we need GM to cover a greater portion of the costs of manufacturing products for GM at plants that bear the burden of our legacy costs. We simply cannot continue to sell products at a loss." The company said that the initial GM contract rejection motion covers less than 10% percent of GM's contracts, and approximately half of Delphi's North American annual purchase volume revenue from GM.

Any decision by U.S. bankruptcy judge Robert D. Drain on Delphi's motions to reject the UAW and GM contracts, along with the other elements of its transformation plan, is at least several months away, with the first court hearings on its motions not scheduled before May 9 at the earliest. In the interim, the three parties plan to keep talking. Delphi said that even if it were to be granted the authority to reject the contracts, it would not immediately do so, hoping that the threat that such action could result might produce more progress toward a consensual agreement.

GM firm, GMAC gains

Despite the turn for the worst that the Delphi labor situation has taken, and its possible negative impact on GM, the latter's bonds were seen mostly unchanged to even firmer, and GMAC's bonds were definitely on the upside, probably on the continuing speculation that GM is nearing a decision on the possible sale of a 51% stake in GMAC, which would put around $11 billion into GM's coffers and could lead to higher ratings and lower borrowing costs for the financing unit.

A market source saw GM's benchmark 8 3/8% notes due 2033 at 74 bid, up 5/8 on the session, while its 7 1/8% notes due 2013 were up 1 1/8 points at 75.125. The source also saw GMAC's 8% notes due 2031 two points up at 94.75 offered.

Another market source saw GMAC's 6.875% notes due 2012 ahead by 1½ points at 92.5 bid.

A trader at another shop said that GM "opened strongly, then dipped a point" - presumably on the Delphi news - "but then came back, and ended pretty much unchanged. It traded in a one-point range but never broke out."

He saw the 8 3/8% notes at 73.75 bid, 74.75 offered. On the other hand, the trader saw the GMAC 8s at 94.25 bid, 94.75 offered, "a two-point move from close [on Thursday] to close [on Friday]."

Yet another trader saw the GM bonds actually easier, with the 8 3/8s down half a point at 73.25 bid, 73.75 offered, but he allowed that GMAC "moved up a bit," with the 8% notes at 95 bid, 96 offered, up 2¾ on the day, "believe it or not," he said.

The GMAC bonds were likely helped by news reports indicating that GM's board - which as of Friday had not yet formally endorsed management's initiative to peddle that 51% GMAC stake - would meet over the weekend to consider it and could have a GMAC-related announcement as early as Monday.

Those news reports indicated that an investor group led by New York-based private equity company Cerberus Capital Management has the inside track in bidding for control of GMAC, even though its approximately $11 billion bid is about $1 billion shy of a competing offer said to have recently been put forward by buyout specialist Kohlberg, Kravis Roberts & Co.

Rest of auto sector quiet

Apart from the bouncing bonds of GM and GMAC, the automotive sector seemed relatively quiet, traders said, with GM arch-rival Ford Motor Co.'s benchmark 7.45% notes due 2031 up perhaps a quarter point at 74 bid, 74.5 offered, and Ford's financing arm's 7% notes due 2013 unchanged at 88.25 bid, 88.75 offered.

Former Ford unit Visteon Corp.'s 8¼% notes due 2010 were unchanged at 81.5 bid, 83 offered, while Lear Corp.'s 8.11% notes were seen up ¾ point at 92.75 bid, 93.25 offered and its 5¾% notes were unchanged at 80.75 bid, 81.25 offered. Lear's bonds rose despite a five-notch downgrade Thursday by Standard & Poor's, which had been predicated upon the unsecured bond debt being pushed lower in the company's capital structure by the issuance of $800 million of new bank debt. That latter financing was seen relieving any short- to- intermediate term liquidity problems the Southfield, Mich.-based interior components maker might have otherwise had.

Bally gains

Bally Total Fitness' 9 7/8% notes due 2017 firmed 1½ points on the day, a market source said, ending at 101.5 bid.

Bally announced that that it had obtained an amendment and waiver from the lenders under its $275 million senior secured credit facility that, among other things, extends both time for delivering audited financial statements for the fiscal year ended Dec. 31, 2005, and unaudited financial statements for the quarters ending March 31 and on June 30 of this year. The amendments also permit the payment of consent fees to the holders of its 10½% senior notes due 2011 and the 9 7/8% senior subs as part of a previously announced solicitation of consents to proposed indenture changes.

Granite Broadcasting Corp. said in its 10-K annual report to the Securities and Exchange Commission on Friday that it would not be able to make a scheduled $19.744 million interest payment on its bonds due on June 1, absent changes in its operations or capital structure.

However, its 9¾% notes due 2010 were not seen trading around on Friday; earlier in the week, they had been pegged around 93.375 bid.

"We have limited sources of liquidity and no working capital facility or other credit facility and therefore will not be able to service all of our obligations," the New York-based television station ownership group warned. It has hired Houlihan Lokey Howard & Zukin as its financial advisor to assist in the evaluation of strategic options and to advise Granite on available financing and capital restructuring alternatives.

"It doesn't seem like the market is firing on all cylinders," a trader said, noting the difficulty of finding trades going on in some issues. "I don't know if its [because of the] quarter-end, but it seems a little illiquid."

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