GM, Refco bonds on the rise; Targa Resources heard downsizing deal

By Paul Deckelman and Paul A. Harris

New York , Oct. 17- General Motors Corp.'s recently struggling bonds were given a jump-start Monday by the company's announcement of an agreement with the United Auto Workers union on healthcare costs that will save it an estimated $3 billion annually - and news that it is seeking a buyer for a controlling stake in its General Motors Acceptance Corp. financial unit. Those developments more than offset the giant carmaker's report of a larger-than-expected $1.6 billion quarterly loss.

GM gave a boost to the auto sector in general, including its recently bankrupt former subsidiary, Delphi Corp., whose bonds were markedly higher for a second consecutive session.

Also heading higher were Refco Inc.'s beleaguered bonds - which had been hammered down to around the 30 bid level last week by allegations of securities fraud surrounding the New York-based commodities brokerage firm; those bonds took a big jump on the news that Refco is in talks to sell its core global futures unit.

Overall various sources had positive color on the broad high-yield market on Monday.

Junk had "a better tone" as the week got underway, said one buy-sider.

Meanwhile an official on a high-yield syndicate desk said the market felt firmer, and added that there are definitely bids out there.

However, while sources marked certain bonds higher - conspicuous among them the automotive names that were especially beaten up in the recent sell-off - the broad market was unchanged to perhaps slightly better on the session, sources said.

In the primary market, Targa Resources Inc. was heard to have downsized its planned two-part offering of fixed- and floating rate notes, with price talk emerging on the fixed-rate tranche.

And Del Laboratories was preparing to hit the road, starting Tuesday, to market a planned six-year notes deal.

General Motors' corporate bonds were being quoted up by as much as four or five points, while GMAC's notes were seen up as much as seven or eight points, given a boost by the UAW news, as well as by the news that GM wants to sell a majority stake of GMAC, which would help the latter regain its cherished investment-grade rating, lost when the parent was downgraded to junk levels earlier in the year.

A market observer saw GMAC's 8% notes due 2031 as having opened at 91 bid, 92.5 offered, and then having moved steadily higher as the day progressed, to finally come to rest at the end of trading at 98.5.

He said that the 8s were the "Number One mover" in terms of volume that he saw, with at least $114 million face amount of the bonds having been traded.

He also saw GMAC's 6¾% notes due 2014 having opened about 90 bid, 90.5 offered, then moving as high as 96, before settling back in at 94.5, "still, a good four-point jump." Volume-wise, he said it was "one of the top movers" for both high yield buyers and high grade players seeking to dip down for some yield.

He saw the parent's benchmark issue, the 8 3/8% notes due 2033 as having started out at 75 bid, 76 offered, then having traded as high as a 79-79.5 context. Toward the end of the session, "the bonds seemed to solidify" around 77 bid, 78 offered, he said.

At another desk, a market source quoted the 8 3/8s at 76.5, which he saw as up 2¼ points on the day, while GM's 7 1/8% notes due 2013 were 1¼ points better at 81.25.

However, at another shop, the 7 1/8s were seen up as much as four points on the day to around 85, while GMAC's 6 7/8% notes due 2012 gained a solid seven points to end at 96.5.

Another trader pegged the GM 8 3/8s at 78 bid, 79 offered going home, up "a good three to four points" from starting levels in a 74.5 bid, 75.5 offered context.

Even though GM lost $1.6 billion ($2.89 per share in the third quarter), a sharp reversal of its year-earlier profit of $315 million (56 cents a share) , investors in both the bond and the stock markets (where GM's NYSE-traded shares gained $2.11, or 7.54%, to end at $30.09, on volume of 42.8 million, or five times the norm) were heartened by other developments, notably, GM's having struck an accord with the UAW on the thorny problem of the cost of providing healthcare benefits for GM's approximately 750,000 U.S. hourly workers, retirees, and their dependents.

The UAW members currently pay just 7% of their own healthcare costs, with the company footing the bill for the rest.

GM said that its deal with the union will reduce GM's retiree health care liabilities by about 25%, or $15 billion, over a seven-year period. It will cut GM's annual employee health care expenses by about $3 billion on a pretax basis, with cash savings estimated at around $1 billion a year.

The news is seen as a huge positive for GM, which is wallowing in red ink as a result of being caught between escalating raw materials prices, its heavy employee healthcare and pension obligations, and declining market share, particularly due to the fall in popularity of its once-hot selling sport utility vehicles.

Another factor was GM's announced intention of selling a controlling stake of 50% or more in GMAC, which the carmaker wants to do to improve GMAC's credit ratings. Those ratings were downgraded, along with GM, to junk status earlier this year, making it more difficult for GMAC to borrow money.

There was no immediate word on how much GM might want for that controlling stake, although estimates range in the $12 billion to $15 billion area, and north of $30 billion for the entire GMAC operation. GM is considered unlikely to completely divest GMAC, which lately has emerged as one of its few good profit centers.

Auto sector lifted

GM's news and the boost this gave to its bonds was felt throughout the automotive sector, traders said. One quoted Dura Operating Corp.'s 9% notes due 2009 three points better at 68 bid, 69 offered, while Dana Corp.'s 6½% notes due 2009 were up some 4½ points at 82 bid, 83 offered.

"Among the autos, the ones [whose bonds were] down in the 60s and the 70s had the biggest pop," the trader said, noting that Delphi's 6.55% notes due 2006 "opened strongly and ended strongly, moving up to 65.5 bid, 66.5 offered, up about four points on the day, while ArvinMeritor's 8¾% notes due 2012 were only up a point at 93 bid, 94 offered.

He saw Lear Corp.'s 8.11% notes due 2009 up a point at 92 bid, 93 offered, helped by the news that the Southfield, Mich.-based automotive seating and interior components company will form an automotive interiors joint venture with billionaire investor Wilbur L. Ross' WL Ross & Co. - and may consider offering to by part or even all of bankrupt interior components maker Collins & Aikman Corp.

Those Collins 10¾% notes due 2011 were meantime firming smartly to 52.5 bid, 53.5 offered from prior levels at 49 bid, 51 offered on the news, a trader at another shop said.

Refco jumps higher on possible sale

Outside of the autos, Refco's bonds were sharply higher in heavy trading helped by the news that the troubled New York financial firm is in talks to sell its global futures business to an investment group.

Refco's 9% notes due 2012 were seen having zoomed as high as the upper 40s from Friday's closing levels around 30, before settling at around 40 bid, 42 offered - the first gain those bonds have seen in days.

Rent-A-Center plunges

A trader said Rent-A-Center Inc.'s bonds were "getting mushed," its 7½% notes due 2010 fell to 92 bid, 93 offered, down from 93.5 bid, 94.5 offered earlier in the day and from 94 bid, 95 offered on Friday.

But he saw "the video guys up on short-covering," with Blockbuster Inc.'s 9% notes two points better at 84 bid, 85 offered, and Movie Gallery Inc.'s 11% notes also up a pair, at 79 bid, 80 offered.

Quiet in the primary

Whereas the Friday new issue market saw two deals price, Hilcorp Energy Co.'s upsized $175 million issue of 7¾% 10-year senior notes and Doane Pet Care Co.'s $150.82 million proceeds 10 5/8% 10-year senior subordinated notes, Monday's primary session reverted to an all-too-familiar quiet.

As sources had been forecasting since early last week Targa Resources Inc. downsized its offering of eight-year senior notes (B2/B-) to $250 million from $350 million on Monday, and talked the notes at a yield in the 8½% area.

The company shifted $100 million to its credit facility, eliminating a proposed tranche of floating-rate notes from the bond offering.

Pricing of Targa's downsized bond deal is expected on Tuesday via Credit Suisse First Boston, Merrill Lynch and Goldman Sachs.

Del Labs heads for the road

Elsewhere Uniondale, N.Y., over-the-counter pharmaceutical manufacturer Del Laboratories will begin a brief roadshow Tuesday for its $185 million offering of six-year senior secured floating-rate notes (B2/B).

The Bear Stearns and JP Morgan-led debt refinancing deal is expected to price this Friday.

The company was last in the market in mid-January of the present year with an upsized $175 million issue of 8% seven-year senior subordinated notes (B3/CCC+) which priced at 99.34 to yield 8 1/8%.

The same two bookrunners, Bear Stearns and JP Morgan, led that deal.

The calendar

Apart from Targa's decision to shift $100 million of its deal to the apparently friendlier environs of the bank loan market and Del Laboratories' launch of a $185 million deal, the forward calendar underwent little change on Monday.

In addition to Targa and Del, it includes Roundy's Supermarkets Inc. $325 million in two tranches, via Bear Stearns and Goldman Sachs, and Pipe Holdings plc (Polypipe Inc.)'s £185 million in two parts, led by Deutsche Bank Securities.

Both deals are expected to price this week.

During the final week of October New York marine transportation company K-Sea Transportation Finance Corp. is expected to sell $150 million of seven-year senior unsecured notes (expected B2/confirmed B+) via Lehman Brothers.

Also thought to be October business is SS&C Technologies, Inc.'s $250 million of subordinated notes via Wachovia Securities, JP Morgan and Bank of America.

Finally, Middletown Rancheria Gaming Enterprises $50 million of non-rated seven-year senior unsecured notes, via Jefferies, is also thought to still be in the market.

Still cash, still on the sidelines

One market-watcher said Monday that the high-yield accounts seem to still have cash to put to work, but appear to be waiting for some sign that interest rates are stabilizing.

Meanwhile a buy-side source suggested that the high-yield syndicates are wasting no time, given the bounce that the market enjoyed at the very end of last week.

With color that his sell-side counterparts have been loathe to refute, this buy-sider predicted that the forward calendar would soon begin to build anew, with November expected to be a busy month for new issuance.

However if the calendar does build, the buy-sider added, it will almost certainly do so amid plenty of credit concerns, a balance of high-yield mutual fund flows that is deep in the red for 2005 (negative $10 billion year-to-date, sources say), and the continued prospect of rising interest rates.

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