Delphi down on more bankruptcy talk, GM sales; issuers slate deals; funds see $101.5 million outflow

By Paul Deckelman and Paul A. Harris

New York, Sept. 1 - Delphi Corp. bonds continued to tumble Thursday, with traders citing a range of factors from weak sales by its former corporate parent - and still largest customer - General Motors Corp. to increased speculation that the troubled Troy, Mich.-based automotive electronics maker might be forced into a bankruptcy filing soon.

GM's own bonds were seen more than a point lower after the world's largest automaker reported a sharp slide in its August sales, although GM rival Ford Motor Co.'s bonds were steady as the Number-Two carmaker posted a modest sales gain last month.

The bonds of ailing air carriers like Northwest Airlines Corp. and Delta Air Lines Inc. were seen losing altitude - Northwest quite badly - amid continued investor fears of higher airplane fuel prices and supply problems in the wake of the disruption to the nation's petroleum industry caused by Hurricane Katrina.

Overall, trades were scarce on Thursday, a high-yield syndicate official told Prospect News.

On exceedingly thin volume the source marked the market unchanged on the day in the face of lower equity prices.

In the primary market, participants were seen getting their ducks in a row ahead of Friday's pre-holiday half-day session (the market will close at 2 p.m. ET) and Monday's full-market closure for Labor Day, anticipating a busy day on Tuesday, when a number of issuers - notably pricey gadgetmaker Brookstone Inc., nutritional supplement manufacturer Nature's Bounty (NBTY Inc.), and countertop producer Panolam Industries Inc. - plan to launch their new deals, and Amerisource Bergen Inc. hits the road to market its planned $800 million issue.

And after trading had ended for the session, market participants familiar with the weekly junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that some $101.5 million more left the funds than came into them in the week ended Wednesday, putting an end to a fledgling improvement seen last week, when inflows to the funds - the first after six straight weeks of outflows - totaled $9.5 million. The latest week's outflow also represents a reversion to the trend seen in those previous six weeks, when outflows totaled $844.5 million, according to a Prospect News analysis of the AMG figures.

For the year so far, outflows have now been seen in 27 weeks of the 35 since the start of the year, against only eight weekly inflows. Cumulative net outflows for the year total around $7.976 billion, according to the Prospect News analysis, down from about $7.874 billion last week.

The fund flow trends have moved through several distinct phases so far this year; after some vague meandering around in the first few weeks of the year, there followed a 15-week stretch of outflows from mid-February through late May during which about $6.776 billion more left the funds than came into them, according to the Prospect News analysis. Then, after a few weeks in June and early July in which the fund flows followed a zig-zag pattern, alternating inflows with outflows, the trend again turned negative around mid-July, and has been that way ever since, with the exception of last week.

Breaking out of that negative gridlock in early June sparked a revival of both the junk primary and secondary market from the doldrums seen at the tail end of the losing streak in late May, although things seem now to have calmed down again as liquidity has leaked from the market.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants since they are considered a generally reliable barometer of the overall liquidity trends - and because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Delphi sinks

In the secondary market, "today was pretty much Delphi," a trader said, and the company's bonds were seen trading lower, with the benchmark 6.55% notes due 2006 seen having fallen all the way into the mid-to-high 70s - one trader pegged them at 78 bid, while another saw them swoon to 75 - from the mid-80s, on an intraday basis. A trader said that the bonds did manage to bounce off those lows - but still finished down "four, five points" to 81 bid, 83 offered.

At another desk, Delphi's 6½% notes due 2009 were seen going home at 76 bid, 78 offered, well down from 80 bid, 82 offered at the opening, while its 2013 61/2s declined three points to 72 bid, 74 offered, and its 7 1/8% notes due 2029 lost a point to 68 bid, 70 offered.

Another trader saw the 6.55% bonds at 81 bid, 82 offered, down from 85 bid, 86 offered, but said that he had not seen much trading in the company's other issues as he had in the '06s.

"There were all sorts of rumors," yet another trader said, including talk that the United Auto Workers union - which is in talks with Delphi, along with the company's one-time parent GM - is going to rely on the carmaker to bail its big supplier out, rather than offer concessions. Yet another rumor making the rounds spoke of a research report by one of the major investment banking houses, which once put the chances of a bankruptcy filing at no better than 30%, now sees an 80% chance of a Chapter 11 case.

Delphi has asked GM and the UAW to work out an arrangement that would give Delphi a hand with its spiraling labor costs, a legacy from its spin-off from GM a few years back. Delphi has indicated that it might have to seek bankruptcy protection if no solution to the labor cost problem is found.

GM ends lower

Also in the automotive sphere, GM's benchmark 8 3/8% notes due 2033 were seen at 82 bid, 83 offered, down 1½ points on the day.

GM was "up, down and all around," a trader said, especially after the Detroit auto giant's shares went up around mid-day (though they came back down to end lower) on billionaire investor Kirk Kerkorian's filing with the Securities and Exchange Commission indicating that he wanted to lift his stake in the carmaker to 9% from around 7% currently.

"The stock spiked," the trader said, "and then the bonds spiked - and people used that as an opportunity to get out and were hitting bids left-to-right."

This was especially true after GM reported its August sales, which the trader called "a disappointment." Its sales fell 16% from year-ago levels, "especially in the heavy vehicles like [pickup] trucks [and SUVs], where they make much of their money."

The fall was all the more significant, following as it did the phenomenal 41% sales gain over year-ago levels seen in June, when GM started its employee-discount-for-everyone promotion, and the respectable 19% rise in July, when the program continued.

Ford, meantime, "had better sales, and it doesn't have Delphi overhanging it" like GM does, a trader said. He saw the company's 7.45% notes due 2031 pretty much unchanged at 80 bid, 80.5 offered. Ford posted a 3% sales gain in August from a year ago, with sales of cars up 25.3% - but the important truck segment down 4.3%.

Delta, Northwest lower

Among the airlines, continued jitters over the price of jet fuel - and, in some areas, its supplies - helped drag the bonds of Delta and Northwest lower.

Northwest, in an SEC filing, said that rising jet fuel prices were eating away at its financial stability, and predicted that its total fuel expense in 2005 will be approximately $3.3 billion, versus the $2.2 billion spent in 2004 and more than double the $1.6 billion spent on fuel in 2003.

Jet fuel prices - which were already sky-high and costing the carriers millions of dollars extra even before Hurricane Katrina, were higher Thursday, in line with overall higher energy costs, and supply shortages were reported in some regions.

A trader saw Northwest's 8 7/8% notes due 2006 fall to 56 bid, 58 offered, well down from 62 bid, 64 offered earlier. Its 9 7/8% notes due 2007 were at 44 bid, 46 offered, down from 50 bid, 52 offered previously, while its 10% notes due 2009 fell to 39 bid, 41 offered from 44 bid, 46 offered.

Northwest's Nasdaq-traded shares swooned $1.06 (21.07%), to $3.97, on volume of 17.4 million, more than triple the norm.

Delta's 7.70% notes coming due on Dec. 15 dropped to 21 bid, 23 offered from 23 bid, 25 offered at the opening, while its other bonds all continued to trade in the mid-teens, each off a point on the day, with the 10% notes due 2008 easing to 17 bid, 18 offered, the 7.90% notes due 2009 at 16 bid, 17 offered, and its 8.30% notes due 2029 at 15-16.

Delta's NYSE-traded shares lost 12 cents (10.34%) to $1.04, their lowest ever, traders said.

Pioneer steady

Back on solid ground, traders saw Pioneer Natural Resources Co.'s 6½% notes due 2008 trading around 103.5 bid, 104.5 offered. Several said they had seen no movement in the normally lightly traded bonds on Wednesday, or even in the several sessions prior to that, with the last real trade seen in that same 103.5 area last week.

The Dallas-based independent oil and gas exploration and production operator outlined a series of planned financial and strategic transactions Thursday, including a two-stage repurchase of $1 billion of its shares, the repurchase of $223 million of its outstanding bonds, and some asset divestitures. Included in the bond buybacks is a tender offer for all of its outstanding $194.5 million of 5 7/8% senior notes due 2012 and a related consent solicitation. The major ratings agencies all reacted negatively to the planned transactions, which will be funded mostly via bank debt, and the planned divestitures. Two agencies threatened to demote the company's bonds and other debt instruments back to junk status, from which it had escaped only in March, while the third agency actually did downgrade the bonds back to below investment grade (see related stories elsewhere in this issue).

Calendar builds

And although there were no issues priced, as expected, a post-Labor Day calendar continued to take shape with the expectation that deals disclosed and undisclosed could represent approximately $2.2 billion of business to be launched next week, not factoring in the drive-by surprises that have also been forecast.

However there was a caveat.

News about the continuing and mushrooming economic fallout from hurricane Katrina, which devastated New Orleans and the U.S. Gulf Coast at the beginning of this week, could trump a lot of pre-Labor Day planning in the capital markets, sources unanimously said Thursday.

Junk set for 'healthy' September

One high yield syndicate official who specified that the market was "dead as a doornail" on Thursday said that given the present capital markets scenario high yield is not a terrible place to be.

"We had a 20 basis points move in Treasuries that didn't really move high yield at all," the source said.

On a spread basis, the source added, junk has cheapened.

The source pointed to the MGM Mirage add-on to its 6 5/8% senior notes due July 15, 2015 (Ba2/BB) which priced on Thursday, Aug. 25. The gaming company priced $375 million at 101.375 to yield is 6.432%.

The syndicate official pointed out that the add-on notes priced at a 226 basis points spread to Treasuries. However relative to recent moves in Treasuries that spread has since widened out to 255 basis points, the source added.

"Home builder paper has widened out dramatically," the official continued.

"When people get back from vacation and start looking - especially the double-B buyers - things might look attractive.

"And we're hearing that people still have cash," the source added.

"Unless the [hurricane] Katrina news and the oil news get materially worse over the weekend - which of course could happen - I think we're going to be okay.

"I think we will have a healthy September."

$2.2 billion to launch next week?

Although news circulated about deals likely to launch on Tuesday following the three-day Labor Day recess, only one roadshow start was heard during Thursday's session.

Williams Scotsman Inc. will start a roadshow Tuesday for its $300 million minimum offering of 10-year notes.

Deutsche Bank Securities, Citigroup, Banc of America Securities and Lehman Brothers are joint bookrunners for the debt refinancing deal from the Baltimore, Md., provider of modular space solutions company.

Also expected to kick off Tuesday:

* AmerisourceBergen Corp.'s $800 million minimum sale of bonds, a debt refinancing deal to be led by Lehman Brothers;

* Brookstone Inc.'s $190 million LBO deal via Banc of America Securities;

* NBTY Inc.'s $150 million minimum debt refinancing via JP Morgan; and

* Panolam Industries Inc. with $150 million of eight-year senior subordinated notes (Caa1), an acquisition financing via Credit Suisse First Boston and Jefferies & Co.

One high yield syndicate official, comparing notes late Thursday, professed knowledge of at least $600 million of business not included in the list above that is likely to be announced next week.

This source put the post-Labor Day launch tally at $2.2 billion.

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