GM bonds up on Kerkorian offer; tower names up on merger news; downsized Kloekner deal prices

By Paul Deckelman and Paul A. Harris

New York, May 3 - An offer by billionaire investor Kirk Kerkorian to increase his holdings in General Motors Corp. sent the giant automaker's recently battered bonds speeding upward on Wednesday, towing some of the pure high-yield automotive supplier names upward with it.

Also headed north were the bonds of American Tower Corp. and rival communications antenna tower operator SpectraSite Inc., as the two companies announced plans to merge in a $3.1 billion all-stock transaction.

In the primary sphere, downsized deals were heard to have priced for Kloeckner Investment SCA and Lazard Ltd., the latter a split-rated offering. Mandra Forestry Finance Ltd. also shook the money tree with a new deal Wednesday.

"We're getting quite a little bounce today for the first time in a while," one high-yield investor, speaking on background, told Prospect News.

"It has probably been sparked by the fact that Kerkorian is doing a tender offer for GM shares at $31 per share. That has popped GM stock up quite a bit, and the bonds have rallied some also.

"That is the catalyst that has probably caused some shorts to cover here," the investor added.

"Some of the auto names have traded up, as well as some of the suppliers.

"But you're really seeing a little bounce - a quarter to half a point in some of the benchmark names - across the market.

"So the market is quoted up a bit today. We'll see if we get some real-investor follow through."

The market "was firm pretty much across the board," a trader said. He noted that even the recently priced bonds of Hawaiian Telcom Communications Inc. - which came to market in a three-part offering late last month and then struggled to stay above water - were back above their par issue price, with the company's 9¾% senior notes due 2013 seen at 100.25 bid, 100.75 offered, and its floating-rate notes, also due 2013, in the 101 bid area.

Among established bonds, GM's bonds got a boost when octogenarian investor Kerkorian's investment vehicle, Tracinda Corp., announced a surprise offer to buy nearly 5% of the company for $870 million. That would increase Kerkorian's holdings in GM to around 9%, making him one of the largest single investors in the company. GM was non-committal, saying that while it "typically does not express a view on specific investor activity," it is "committed to enhancing shareholder value for all of our investors."

GM shareholders were delighted with the idea, and gave the stock an 18% boost on volume of nearly six times the usual turnover.

Meanwhile, bond investors - including some in the high-yield market who have begun to dabble in the once-mighty carmaker's bonds, now rated just a short step away from junk status - were also riding the rocket. GM's 8 3/8% notes due 2033 were seen having pushed up to 77 bid from 75 offered previously, while its 9.4% notes due 2021 "also tracked higher," a market source said, quoting those bonds up a point or two, at 84.5 bid, 85 offered.

"Definitely, people were pretty happy about that," the source opined, noting the rise in the automaker's stock - which in turn sparked a major rise in the equity market, with the Dow Jones Industrial Average ending up 128 points - as well as its firmer convertibles.

He also saw a major gain in the bonds of GM's finance unit, GMAC - right now, the only real reliable profit center in the GM universe.

GMAC's 6% notes due 2019 were up 1½ points to 71 bid, while its 6.1% motes, also due 2019, were likewise firmer at 70 bid, 72.5 offered.

"Everything got pushed up a point or two," he said, quoting GMAC's 6.55% notes due 2019 up about a point at 72.5, while its 7.4% notes due 2017 rose to 80.75, up 1½ points.

What's good for GM is considered good for the automotive suppliers, who were also higher on the day, among them Tenneco Automotive, whose 10¼% notes due 2013 were nearly a point better at 110.25, while TRW Automotive Inc.'s 9 3/8% notes due 2013 were seen up more than two points on the day at 104.75.

American Tower, SpectraSite gain

Apart from the autos, the news that American Tower Corp. will acquire SpectraSite, pushed the bonds of both companies up - but American Tower seemed to be the biggest beneficiary.

"It's not a leveraged deal, since the whole thing is an all-stock transaction," a trader said in explaining why Boston-based American Tower's bonds reacted positively to the news of the impending merger. On top of that, company officials said on a conference call announcing the deal that the combination of the two tower operators will create a company that it less leveraged and which may enjoy a lower cost of capital further down the line. The deal will be structured so that SpectraSite will be an unrestricted subsidiary of American Tower, which frees the latter up to draw cash from its unit, which might then be used for expansion or returned to the shareholders (see related article elsewhere in this issue).

The trader saw American Tower's 7 1/8% senior notes due 2012 having firmed a point to 100.5 bid, 101 offered, while its 7½% seniors due 2011 went to 102.5 bid, 103.5 offered from 101 bid, 102 offered, and its zero-coupon/12¼% senior subordinated discount notes due 2008 were pretty much unchanged at 75.5 bid, 76.5 offered, although the trader noted that "they're already trading tightly on a yield-to-call basis."

SpectraSite's 8¼% senior notes due 2010 were meantime seen having gotten as good as 105 bid, 105.5 offered, from prior levels at 103.5 bid, 104.25 offered.

United Rentals higher on earnings

Elsewhere, a trader saw United Rentals Inc.'s 7¾% notes due 2013 having pushed up to 96 bid, from 93 bid, 93.5 offered, on favorable preliminary first-quarter earnings data put out by the Greenwich, Conn.-based equipment rental company.

Its 7% notes due 2014 were likewise up three points, at 92 bid.

The company said that said it expects to post a profit of about 15 cents per share in the first quarter versus a year-ago loss of eight cents a share. It said that higher prices drove a 14% increase in revenue for the period.

United Rentals has postponed its final 2004 report, pending a Securities and Exchange Commission inquiry into its bookkeeping and an income-tax restatement.

Allied Waste better

The trader also saw a point to 1½ point gain in Allied Waste Industries Inc. bonds, citing favorable ink for the Scottsdale, Ariz. waste-disposal firm in the form of a Wall Street Journal article. The 7 3/8% subordinated notes "move a lot faster" than the company's other bonds, gaining 1 ½ points on the day to 88.5 bid, 89 offered.

Looking for improvement in secondary

The new issue market remained a tough one on Wednesday, with terms emerging on two junk deals from overseas issuers and a split-rated deal from Lazard LLC.

Sources said that meaningful improvement in the primary market will likely await a sustained improvement in the secondary market.

Meanwhile sell-siders continue to lament that some of the issuers currently in the market to price new junk bonds tend to have outdated - and therefore unrealistic - expectations with regard to price talk.

"When some of these companies started making plans to raise capital, high-yield spreads were historically tight," one sell-side source said.

"People were pricing deals with incredibly low yields.

"However since the beginning of spring there has been a dramatic change in this market. Yet some people still seem to be clinging to those dated expectations of low yields."

Kloeckner prices at wide end of revised talk

German steel trader Kloeckner Investment SCA priced a downsized €260 million issue of 10-year senior notes (B3/B-) at par on Wednesday to yield 10½%, on the wide end of the revised 10¼% to 10½% price talk, which had been raised from 9¾%-10%.

JP Morgan and Barclays Capital ran the books for the leveraged buyout-funding deal, which had been downsized from €350 million.

To compensate for the €90 million decrease in the bond offering, €40 million of equity has been added to the overall financing and a €50 million dividend payment to the sponsor has been taken out.

Mandra prices notes, warrants deal

Elsewhere Mandra Forestry Holdings Ltd. priced a downsized, restructured $195 million issue of eight-year senior notes (B1/B) with warrants at par to yield 12%, on top of price talk.

Morgan Stanley ran the books.

Attached to the notes are warrants for 20% of te common shares. The notes also contain a cash-flow sweep provision.

The Hong Kong-based forestry company intends to use the proceeds to fund the acquisition of commercial plantations in Anhui Province, China. However if it fails to secure 140,000 hectares of the plantation property during the first two years, investors get immediate access to an escrow account balance.

The bond comes with five years of call protection, although Mandra had previously been in the market with a 10-year bullet.

The issue size was decreased from $235 million.

Unusual call structure

Mandra is the second issuer in seven days to end up pricing a bond with the novel eight-year non-call-five redemption structure.

On Wednesday, April 27, Triad Acquisition Corp. priced a downsized restructured $150 million issue of 11 1/8% eight-year non-call-five senior notes (B3/B-) at 99.35 on to yield 11¼%.

One source said that the extra year of call protection on these deals signals pushback against the standard four years of call protection customarily afforded to investors who purchase high-yield bonds with eight-year maturities.

Seven-handle for Lazard

Finally on Wednesday, Lazard LLC priced a downsized $550 million split-rated issue of 7 1/8% 10-year notes (Ba1/BBB-) at 99.921 to yield 7.136%.

The bond priced at a spread to Treasuries of 295 basis points.

Price talk was Treasuries plus 300 basis points.

Citigroup and JP Morgan were joint bookrunners for the deal, which was cut from $650 million.

One high yield market source, who did not participate in the Lazard transaction, suggested that the seven-handle on Lazard's new split-rated 7 1/8% note due 2015 is also a sign of a difficult bond market.

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