Delphi trades lower trailing Highland bid; Chemtura off on acquisition news; funds lose $45 million

By Paul A. Harris

St. Louis, Dec. 21 - The broad high-yield market was firm but very quiet on Thursday, sources said after the last full session before the holiday break in the run up to 2007. The market is scheduled to close at 2 p.m. ET on Friday.

All was quiet in the primary market, with no deals pricing and no announcements made.

The thinned ranks working the secondary market also said that activity was extremely light during the day.

However traders and other market sources noted movement in the bonds of Delphi Corp., Chemtura Corp. and Tembec, Inc.

And according to AMG Data Services, the high yield mutual funds saw $45.1 million of outflows for the week to Dec. 20.

That weekly flow follows that previous week's healthy $266.6 million inflow.

The latest outflow, among funds that report to AMG on a weekly basis, extends the year-to-date net redemptions to approximately negative $3 billion.

Delphi skids on Highland bid

Highland Capital Management, LP announced on Thursday that it would pony up $4.7 billion of equity to counter a bid for Delphi made on Dec. 18 by a group of investors led by Cerberus Capital Management, LP and Appaloosa Management LP.

Highland Capital contends that under the Appaloosa/Cerberus deal, Appaloosa, Cerberus, and other select parties would purchase $1.2 billion in convertible preferred securities and $200 million in common stock that would not be available to other equity holders, in addition to any unsubscribed shares from a $2.0 billion rights offering.

Highland Capital believes this "inside deal" would give Appaloosa and Cerberus disproportionate equity ownership at the expense of current stockholders and would immediately deliver a value transfer of approximately $1 billion to the Appaloosa/Cerberus group.

Bondholders, however, reacted negatively to Highland Capital's initiative, according to sources who spoke to Prospect News.

Two traders and another market source marked Delphi paper lower on the session.

A trader spotted the 7 1/8% notes due 2029 down 3 points at 111.0 bid, 112.0 offered, while the Delphi 8¼% notes due 2033 were down around 9 points at 118 bid, 119 offered.

Another trader said the Delphi 7 1/8% notes of 2029 were 2.25 lower on Thursday, going out at 110.25 bid, 111.25 offered after having closed at 113.50 bid, 114.50 offered on Wednesday.

This source added that the Delphi 6.55% notes due 2006 closed at 111.0 bid, 112.0 offered on Thursday, down 1½ points from the 112.50 bid, 113.50 offered Wednesday close.

Meanwhile another market source said that the Delphi 8¼% notes due 2033 closed at 123 bid, down two points, while the 7 1/8% notes due 2029 closed at 111.75 bid, down 2.75.

Chemtura lower on acquisition

Elsewhere on Thursday, Chemtura was lower after it and Kaufman Holdings Corp. announced that they have signed a letter of intent for Chemtura to acquire Kaufman's stock in a cash transaction expected to close in the first quarter of 2007. Terms were not disclosed but market sources said that the deal is valued at $200 million.

Kaufman is a privately-held producer of synthetic lubricants, with manufacturing facilities in Fords and East Hanover, N.J. and Oakville, Canada.

Chemtura, which posted $3.9 billion of sales in 2005, is a manufacturer of specialty chemicals and crop protection and pool, spa and home care products.

News of the deal sent Chemtura's bonds lower.

A trader who spoke late Thursday morning saw the Chemtura 6 7/8% bonds maturing in 2016 at 96.75 bid after having been at 98.75 bid at the Wednesday close.

This trader added that earlier Thursday morning the Chemtura 6 7/8% paper had been as low as 95 bid, 96 offered.

Later in the day another trader remarked that Chemtura was down a little in a quiet market, and spotted the 6 7/8% notes due 2016 in a 96.50 bid, 97 offered context, down from 98.50 bid, 99.50 offered on Wednesday

Yet another trader marked the same issue closing at 96.50 bid, 97.50 offered, and added they were down 2.5 points from the 99 bid, 100.0 offered close on Wednesday.

Meanwhile a market source saw the Chemtura 6 7/8% notes due 2016 at 97 bid, down 2.75.

Tembec notching higher

A trader said on Thursday that Tembec bonds have lately been firming.

The source said that the paper seems to be creeping up about half a point a day, and added that paper and forestry bonds trading in the sixties are rare indeed, which may explain the appreciation in price.

The trader marked the Tembec 8½% notes due 2011 at 60.50 bid on Thursday, up a point from 59.50 bid at the Wednesday close.

Another trader had the Tembec 8 5/8% notes due 2009 spotted at 68.50 bid, 69.50 offered, up a point.

The trader made reference to the $242 million refund Tembec received on Oct. 30 as the result of the Canadian and U.S. governments finalizing the agreement to govern the flow of Canadian softwood lumber into the United States.

The amount Tembec received is approximately 82% of the total amount of its deposited lumber export duties, including accrued interest.

"The story seems to be that they have enough liquidity via the refund to last through the end of next year," the trader remarked, adding that this burst of liquidity gave way to a little bit of short covering.

"There is also a little speculation - a vague feeling, really - that they might use some of this cash to take out some debt."

This source also noted that Tembec, trading in the 60s, is an anomaly in the universe of forest and paper products junk bonds, most of which trade in the 90s.

Primus down on de-reg news

Recent deregulation in the Canadian telecom sector sent Primus Telecommunications Group, Inc.'s bonds lower on Thursday, according to one trader who said that the Primus 12¾% notes maturing in 2009 were 65.50 bid, down 2 points on the day.

"And there are still sellers," the trader asserted.

Meanwhile a market source saw the Primus 12¾% notes due 2009 at 65 bid, down 3 points.

Smithfield weathers downgrade

News that hog producer Smithfield Foods Inc. had its long-term debt ratings cut by Moody's Investors Service on Wednesday did not impact the company's bond prices on Thursday, sources said.

Moody's lowered the company's senior unsecured debt to Ba3 from Ba2, commenting that the hog producer and processor may have difficulty paying for recent acquisitions.

A trader said that Smithfield's 7% bonds due 2011 went out Thursday at 101.25 bid, 102.25 offered, unchanged.

The trader added that the Smithfield 7¾% notes due 2013 were 103.75 bid, 104.75 offered, also unchanged.

Delta slips, Northwest higher

Elsewhere a trader spotted the Delta Air Lines, Inc. 8.30% notes due 2029 at 65.50 bid, 66.50 offered, down ½ point, while the Northwest Airlines 9 7/8% notes due in 2007 were up a point at 96 bid, 97 offered.

Meanwhile the Bally Total Fitness 9 7/8% bonds due 2007 were up ½ point at 93.75 bid, 94.75 offered, according to a trader who also spotted that company's 10½% notes due 2011 unchanged at 98.50 bid.

Finally, a market source saw wheel-maker HLI Operating Co., Inc.'s 10½% bonds due 2010 at 89 bid, up 2 points.

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