Textron gains on sale rumors; Freescale jumps on asset sale news; retailers better; funds draw $680.8 million

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., April 9 - Textron Inc. got a boost during Thursday trading, traders reported.

Traders said the aircraft manufacturer's debt gained as much as 12 points on the day, following news reports that the company had found an interested buyer.

Freescale Semiconductor Inc.'s bonds were also better on the back of news of a potential asset sale.

Reports for March retail sales started to trickle out during the final session of the holiday week. Better than expected readings helped many names move up, including Michael's Store Inc., Dollar General Corp., Macy's Inc. and JC Penney Corp. Inc.

The automakers remained topical as well Thursday. Ford Motor Co.'s bonds continued to post gains, while General Motors Corp.'s notes staged a retreat.

The bond market will be closed Friday in observance of Good Friday.

Funds add $680.8 million

Meanwhile cash continued to flow meaningfully into junk.

The high-yield mutual funds saw $680.8 million of inflows for the week to Wednesday, according to AMG Data Services, market sources said.

It extends the past month's positive flows to $2.8 billion, a high-yield syndicate official commented.

The $680.8 million inflow that AMG reported on Thursday was the fourth consecutive inflow into funds which report to AMG on a weekly basis.

It trails the previous week's $980 million inflow.

The four consecutive weeks of inflows have generated $2.8 billion of cash, and extend year-to-date positive flows to $5.44 billion.

Meanwhile the funds that report on a monthly basis saw $414 million of inflows during the most recent period, extending their year-to-date positive flows to $5.95 billion.

Year-to-date aggregate flows, the combined total of the weekly reporting funds plus the monthly reporting funds, came to $11.39 billion by Wednesday's close.

Market indexes firm

The CDX Series 12 High Yield index gained ¾ points to close 74 3/8 bid, 74 5/8 offered, a trader said. The KDP High Yield index was meanwhile better at 54.53, yielding 13.07%, compared to Wednesday's level of 54.35, with a yield of 13.06%.

But despite the shortened holiday session and week, traders were surprised at the amount of volume coming Thursday.

Around lunchtime, a market source said about $700 million of debt had traded, adding that "everything is better by 2 to 4 points, I would say."

"The market was stronger," a trader commented, adding that cash bonds were better bid by a point or so, on average.

Textron gains on potential sale

A trader said Textron's bonds were "up huge" on reports that a group of Middle Eastern companies were nearing a deal to buy the aerospace and defense company.

The trader called the bonds up 10 to 12 points, the 4.60% notes due 2010 in the high 80s.

But another trader saw the issue gaining only 3 points to 85 bid, 87 offered. He added that was down a tad from the day's high around 90.

Another trader placed the issue at 87, with about $35 million trading.

Textron manufactures Cessna business jets, as well as Bell helicopters. The potential purchasers are proposing to take over the company at $21 per share, more than double Textron's current stock price.

But Gimme Credit analyst Carol Levenson stated in a research note that she had doubts about the company's ability to "unload that albatross, Textron Finance." Levenson said the agreements between the parties require that Textron maintain a controlling interest in its business and that the units are "intertwined in myriad other way."

Also, "we understand why the stock market might cheer this rumor, but we question why the bond market has decided it would be a positive for bondholders without knowing more details about where the current debt might end up."

Freescale jumps on asset sale

Freescale Semiconductor's bonds gained a good 5 points on the day on news that Chinese company Cosun will buy some of the company's assets.

A trader quoted the 9 1/8% notes due 2014 at 13 bid, 14 offered, up from 9 bid, 10 offered at the beginning of the week. He also saw the 8 7/8% notes due 2014 at 27 bid, 28 offered, up from opening levels around 25 and closing levels on Wednesday of 22 bid, 23 offered.

Another source also saw the 8 7/8% notes around 28, calling those 5 points firmer.

At another desk, Freescale's 10 1/8% notes due 2016 were deemed over 2 points better at 22 bid, 24 offered.

Cosun, the parent company of Qiaoxing Mobile Communications Co., Ltd., plans to purchase Freescale's wireless communication division. No price was given, but Cosun is reportedly set to acquire intellectual property, about 1,600 research and development employees and some equipment.

Freescale is an Austin-based manufacturer of embedded semiconductors.

Retailers moving higher

Retailers "rallied some," a trader said, as monthly sales numbers for March started to trickle out.

A trader saw Michaels Stores' 10% notes due 2016 moving up to around 51, while another saw that issue ending around 50. The second source also saw the 11 3/8% notes due 2016 at 39.5.

On the higher-rated end of the spectrum, Dollar General's 10 5/8% notes due 2015 moved up to "101 and change," the first trader said.

But it was Macy's and JC Penney that really moved, traders reported.

The first trader saw Macy's 5.35% notes due 2012 at 83, calling that "up a couple." Another trader echoed that level, adding that it was "definitely up a couple of points."

Meanwhile, JC Penney's 7.65% notes due 2016 gained 1 to 2 points to close at 81.

The International Council of Shopping Center's monthly index reading saw same-store sales falling 2.1% in March. However, that included a 3% decline due to Easter and the calendar shift.

"The overall tone for March was actually stronger than the reported sales performance," said Michael P. Niemira, ICSC chief economist and director of research, in a statement.

"Sales performance was dampened due to several factors, two of which were calendar related; the first being a calendar-month shift that caused there to be one less Saturday in March compared with last year and the second being that Easter falls three weeks later this year, on April 12, as opposed to March 23 last year.

"These shifts created an unfavorable month-over-month comparison with March of 2008," he continued. "If we adjust for the calendar shifts sales for March were stronger than reported, in fact, up about 1%."

The council forecasts April sales will be flat to up 1%.

Macy's and JC Penney both released same-store figures for the month. Macy's saw sales falling 9.2% at stores open at least one year, slightly below analysts' expectations of a 9.3% decline. For the four weeks ending April 4, total sales dropped 9.8% to $1.931 billion.

Over at Penney's, same store sales declined 7.2%, better than the 10.5% decline that had originally been predicted.

Furthermore, Penney's forecast a narrower-than-expected loss for the first quarter of 2009, predicting a 5 cent to 10 cent loss. Previously, the company had placed guidance at a loss of 20 cents to 30 cents.

Ford racks up gains, GM retreats

Ford bonds continued to gain strength, just as rival General Motors continued to slide.

A trader said the "long Fords" - the benchmark 7.45% notes due 2031 - moved up 3 to 4 points to "42-ish."

"So those have come a long way," he noted.

Another source pegged the 7% notes due 2013 at 70 bid, a ½ point gain day over day.

Yet another source placed the 7.45% notes at 39.5 bid, 41.5 offered, calling that up over a point.

That source also saw GM's benchmark 8 3/8% notes due 2033 at 8 bid, 10 offered, a 2 point loss.

Another trader called Ford's benchmark issue 3 points firmer at 39 bid, 41 offered, but saw GM's 7.20% notes due 2011 close unchanged at 11 bid, 13 offered.

On Thursday, Ford's president, Mark Fields, told reporters at the New York International Auto Show that the Dearborn, Mich.-based company had no interest in acquiring Chrysler - whether in full or in part - should the automaker be forced to file Chapter 11.

"We're focused right now on managing Ford around the world right now. We're focusing on Ford, so no," Fields said, according to Reuters.

Fields also reiterated the company's belief that it would not need to draw on emergency government aid. Earlier in the week, Ford said it reduced its debt by $9.9 billion through a series of exchanges.

"We do have a significant amount of liquidity and based on our assumptions ... we have no plans to access any of the emergency taxpayer funds," Fields said.

In GM-related news, the Detroit automaker is reportedly working on a new plan to take to bondholders. The company had originally offered bondholders 8 cents cash on the dollar, 16 cents on the dollar in new unsecured debt and a 90% stake in the reorganized company's equity.

But news reports indicate that the new revised terms will be far worse, with bondholders receiving no cash or new debt and as little at 10% to 20% of the new equity.

GM has until June to come up with a viability plan that the Obama administration can approve. The company was sent back to the drawing board last week after the administration said GM's proposal did not cut deep enough.

Broad market tidbits

In the rest of the marketplace, American International Group Inc.'s 4 7/8% notes due 2012 closed unchanged at 43, according to a trader.

Sprint Nextel Corp.'s 6 7/8% notes due 2013 gained 3 points to end at 62 bid, 63 offered.

Five-B week

The primary market failed to generate any straight-out dollar-denominated speculative-grade issuance during the April 6 week.

However two five-B deals were completed - both of them pricing off high-yield syndicate desks.

Qwest Corp. priced a massively upsized $810.5 million split-rated issue of 8 3/8% seven-year senior notes (Ba1/BBB-/BBB-) at 92.498 to yield 9 7/8% on Tuesday.

The issue, which was introduced at an amount of $300 million, was slightly less than two-times oversubscribed at the upsized amount.

Approximately 85% of the participation came from high-yield accounts, including crossover accounts, with the remainder coming from high-grade investors.

Also on Tuesday Ventas Realty, LP and Ventas Capital Corp. priced a $200 million issue of notes mirroring their 6½% senior unsecured notes due June 1, 2016 (Ba1/BBB-/BBB-) at 84.25 to yield 9.597.

The deal was well oversubscribed, according to the source who added that 90% of the participation came from high-yield accounts, with high-grade and equity accounts playing the remaining 10% of the deal.

The week ahead

There are deals in the works, syndicate sources assured Prospect News on Thursday.

Some of them are apt to be rolled out during the post-Easter week, they added.

However deal-volume is apt to hover in the two to three issues per week range as spring 2009 deepens, a market source predicted.

"This week was tough, given that it was a short week," the source said, alluding to the fact that no straight-out junk issuance cleared the primary market in the four-day run-up to Easter.

"Business is expected to pick up," the source added.

"I think there is a bid out there. Things are starting to gap up, and people are going to be looking for where they can put money to work.

"But I don't think volume is going to increase dramatically."

Companies apt to come into the primary market presently are ones with liquidity needs, the market source said, adding that there could be issuance from companies that want to get ahead in the game, in terms of their capital structures.

However right now there is a tendency among companies in that latter category to remain on the sidelines, and wait for a better day.

"What we've seen so far this year is that in the space of two weeks the market can widen substantially, and the window can close," the source explained.

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