Goodman sells private deal; Goodyear up on good numbers; GMAC off on warning; funds add $3 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 14 - Goodman Global Inc. was heard by high yield syndicate sources on Thursday to have priced at half-billion-dollar offering of eight-year notes as a private placement. It was the second new deal in as many days for the previously sedated junk market primary sphere, coming on the heels of Wednesday's pricing of a restructured offering of seven-year secured bonds from Axcan Pharma Inc.

After the close, word came down that Elyria Foundry Co. had priced an offering of notes with warrants.

In the secondary arena, Goodyear Tire & Rubber Co.'s bonds were better, given some bounce by the Akron, Ohio-based tiremaker's swing to a fourth-quarter profit versus its year-earlier loss, as well as its progress in cutting debt last year and its plans to further reduce debt this year.

Also moving solidly upwards on the potent combination of better results and debt-cutting plans was Amkor Technology Inc., adding on to the gains its bonds and shares notched Wednesday when the Chandler, Ariz.-based high-tech company announced its numbers and elaborated on its planned debt cuts on its conference call.

On the downside, GMAC LLC's bonds were being quoted lower after its controlling shareholder, Cerberus Capital Management LP, warned investors that the Detroit-based automotive and residential lending company could run into "substantial difficulty" if the credit markets don't improve.

A high yield syndicate official said that while the CDX index was lower on Thursday there was little if any trading activity.

Fund flows up $3 million on the week

Meanwhile, a market source familiar with the weekly high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday, $3.2 million more came into the funds than left them.

While small, it was the second consecutive weekly inflow, on top of the previous week's $141.6 million cash infusion, and the second for the year overall, against five weekly outflows, according to a Prospect News analysis of the AMG statistics.

The latest week's inflow brought the net outflow total for the year through Feb. 13 down to approximately $598.1 million from around $601.3 million the previous week, according to the analysis. (The year-to-date cumulative figures include the final three market sessions of 2007, which were reported as part of the week ended Jan 2, according to the source). In 2007, outflows among the weekly reporters totaled some $2.75 billion.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - 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, more recently, hedge funds.

Elyria prices $100 million

In the primary market Elyria Foundry Co. LLC and EH Acquisition, Inc. priced a restructured $100 million issue of 13% five-year senior secured notes (B3/B) with warrants for 15% of the company's equity.

The issue is comprised of 100,000 notes and warrants units.

The notes priced at 96.46 to yield 14%.

The deal was originally launched as a notes-only offering.

Jefferies & Co. ran the books.

Proceeds will be used to finance the acquisition of Hodge Foundry, Inc.

Goodman Global goes private

Also on Thursday news circulated the market that Goodman Global had made a $500 million private placement of 13½% eight-year senior subordinated notes on Wednesday.

The non-rated notes were priced at par.

GSO Capital Partners LP and Farallon Capital Management, LLC took down the bulk of the issue, but there were distributions to other parties.

The notes come with a 14% PIK coupon option which allows the issuer to make a blended 11% cash-3% in kind coupon payment.

Barclays Capital was the sole placement agent. The notes were placed with registration rights.

Proceeds will be used to help fund the $2.65 billion LBO of the company by Hellman & Friedman LLC.

A source close to the transaction characterized it as a club-style placement, and told Prospect News that the merger had come together last August, hence Goodman Global was a "post-crunch deal," unrelated to the junk leftover from the hung LBO deals, commitments to which were made prior to the mid-summer 2007 credit market selloff.

No trading seen in new deals

There was no secondary trading seen in the new Goodman Global 13 ½% notes.

Several traders likewise saw no aftermarket activity in Axcan Pharma's 9¼% senior secured notes due 2015 which priced on Wednesday, with one surmising that the smallish ($228 million) deal had probably been put away.

Market indicators seen mixed

A trader said that the widely-followed CDX index of junk market performance eased by ¼ point on the day Thursday to 88¼ bid, 88½ offered. Meanwhile, the KDP High Yield Daily Index firmed by 0.07 for a second straight session, moving up to 74.25, while its yield narrowed by 3 basis points to 9.57%.

In the broader market, advancing issues and decliners were about even. Overall activity, reflected in dollar volumes, fell by 29% from Wednesday's levels.

Junk market ignores stock slide

A trader said that from where he sat, "things were quieter today than they were [Wednesday]."

Another agreed that they were "pretty quiet. A lot of people were watching [Federal Reserve chief Ben] Bernanke and still reading through transcripts from earnings reports and whatnot."

Bernanke told the Senate Banking Committee that the central bank "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," a phrase taken by observers to mean that it will almost certainly continue to lower its key interest rates at its next scheduled meeting on March 18, although Bernanke also told the panel that the Fed does expect growth to pick up later in the year.

However, along with that promise of action and hope for improvement down the line, the Fed chairman had to admit that the outlook for the economy had worsened in recent months and said risks to growth had increased, forcing the Fed into its recent series of rate cuts. He warned that things will likely get worse before they get better, with home building likely to continue to slow, home values probably continuing to retreat, and a softer jobs market, higher energy prices and tighter credit likely to weigh on consumer spending in the near term. This unpleasant valentine did not exactly set hearts aflutter on Wall Street, where the major indexes all retreated, with the bellwether Dow Jones Industrial Average ending down 175.26 points on the day.

But the trader said that "for the first day this week, we probably didn't track the equity market - with [Dow] stocks down 175, you'd expect us to be a little softer than we were. But things were pretty much unchanged.

He said "the market had a decent tone to it, even in the face of equities. We did see some selling into strength. It kind of feels like we're range-bound here - we see buyers on dips and sellers on strength. So we're waiting for the next stimulus - one way or another - to push us for the next big move."

Amkor continues gains

Here and there, however, there were departures from the pattern of selling into strength, notably with Amkor; the trader said that the semiconductor testing services provider's bonds were "up nicely on the earnings report late yesterday [Wednesday] and today."

He saw the company's 9¼% notes due 2016, which had risen about 2 points on Wednesday to the 92.5 bid, 93.5 offered level, "up a little more" on Thursday, tacking on another deuce to finish at 94.5 bid, 95.5 offered.

At another desk, the company's 7¾% notes due 2013 were seen having gained nearly 3 points Thursday to end at 90.25, on top of a ½ point gain seen Wednesday. However, another market source saw those bonds get as good as 93.5, but then give it all back and then some to close at 90 even, down around ½ point.

Its 7 1/8% notes due 2011 were seen having firmed to 95.5 bid.

The company's Nasdaq-traded shares - which on Wednesday had jumped more than 10% on triple their usual volume - got even stronger on Thursday, tacking on another $1.27, or 13.51%, to finish at $10.67. Volume of 15.2 million shares was almost seven times the norm.

Amkor on Wednesday said fourth-quarter net income jumped to $93.7 million, or 46 cents per share, from $59 million, or 30 cents per share, a year earlier. Those numbers also handily beat analysts' expectations of profits around 28 to 30 cents per share. Sales were up 9% year-over-year to $746.9 million from $683 million, given a big boost by demand from the makers of wireless, computing and gaming applications, and again handily topped Wall Street projections of about $700 million.

Besides better numbers, Amkor executives told investors and journalists on their conference call Wednesday that it had reduced its overall debt load last year by $241 million, to $1.8 billion at year's end, and plans to slice at least another $152 million from that debt burden this year - $88 million of the 9¼% notes, plus another $64 million of maturing debt held by subsidiaries.

They said the company would be able to do this because its strong cash-flow position, which left Amkor sitting on a $410 million cash cushion at year's end.

Goodyear Tire rolls to Q4 profit

Another name seen doing better on Thursday after posting good numbers and outlining debt-cutting plans was Goodyear Tire. A market source saw the company's 7.857notes due 2011 up more than a point on the day at 101.25, although another trader said he had seen little of the bonds.

Goodyear's New York Stock Exchange-traded shares rose $1.87, or 7.39%, to end at $27.19. Volume of nearly 9 million shares was almost three times the usual handle.

Goodyear swung to a fourth-quarter profit of $52 million, or 23 cents per share, versus its year-earlier net loss of $358 million, or $2.02 per share, although it should be noted that the 2006 figures were affected by a three-month long strike by Goodyear's U.S. workers that virtually crippled its domestic operations. Excluding discontinued operations and one-time special items including restructuring costs and losses on asset sales, Goodyear had adjusted earnings of 49 cents per share, about a nickel higher than Wall Street had been anticipating.

Besides its better numbers, Goodyear said that it managed to slash its debt load by $2.5 billion in 2007, ending the year with $4.7 billion of obligations, and will use a chunk of its hefty cash cushion - $3.5 billion as this year opened - to repay an additional $750 million of debt in March (see related story elsewhere in this issue).

Despite the fact that fourth-quarter revenue declined 2.2% when adjusted for currency gains and the impact of the 2006 strike, including a 4.7% slide in North American operations, its EBITDA improved to $423 million from $316 million a year earlier, thanks to better pricing and mix and cost savings.

Analyst Shelly Lombard of the Gimme Credit investment advisory service said in a research note Thursday that "we continue to like Goodyear. Management is doing a good job of generating cost savings and marketing its higher-margin products. And since consumers can't delay tire replacement indefinitely, we expect EBITDA to grow nicely once the North American replacement market recovers."

Lombard cautioned that such growth was by no means guaranteed - a recession could cause motorists "to opt for a lower end, less expensive tire, negatively impacting Goodyear's pricing and mix."

However, overall, Gimme Credit sees Goodyear's position improving, with favorable long-term prospects. "It came out of the strike with badly-needed cost savings, an innovative way to deal with retiree benefit costs, and pent-up demand for replacement tires."

GMAC could see trouble ahead, bonds gyrate

The prospects for automotive and residential finance giant GMAC, on the other hand, leave much to be desired, according to the founder of its controlling shareholder.

Stephen Feinberg said in a letter to investors in Cerberus Capital Management - the New York-based private equity firm which led the 2006 buyout of 51% control of GMAC from former corporate parent General Motors Corp. - that GMAC "could run into substantial difficulty" if the current credit market environment does not improve, although he said that Cerberus has "detailed contingency plans" should that occur.

He also sought to reassure his investors that their investment in GMAC is safe, noting that the $7.1 billion which the Cerberus-led syndicate paid for its controlling interest in GMAC was a cheap enough price that the syndicate is still "in reasonable shape" with its investment, even with all of the recent problems in the credit markets generally and the residential mortgage market in particular, where GMAC has exposure through its full ownership of Minneapolis-based mortgage lender Residential Capital LLC.

A trader saw ResCap's issues, such as its 6 7/8% notes due 2015 up ½ point at 62.5 bid, and called it "interesting" that ResCap was firmer while GMAC "was going the other way" - he saw the latter's bonds, like its 8% bonds due 2031 "on a wild ride" on reports about the Cerberus letter. He said the bonds were as good as 82 bid, 79 offered before finally ending at 79, down 1½ points. However, another trader saw GMAC unchanged at 81 bid, 82 offered, and saw GM's benchmark 8 3/8% bonds due 2033 unchanged at 80 bid, 81 offered.

Idearc rally comes to an end

Elsewhere, traders saw Idearc Inc.'s bonds moving back down after several sessions in which they had seemed to have found their bottom and had actually been firming off that level.

A trader who had seen its 8% notes due 2016 finish Wednesday at 72.5 bid, 73 offered, called the bonds "a little bit softer" on Thursday, offered at 72.5 but with no bid side seen. He estimated the bonds off anywhere from ½ point to a full point.

Another market source saw the Dallas-based telephone directory publisher's bonds at 72 bid, off a point on the day.

Yet another market source, pegging the bonds down around a point at 71.5, also saw the 6 7/8% notes due 2013 of Idearc's Cary, N.C.-based competitor R.H. Donnelley Corp. off 1½ points on the day at 72.5.

The two phone directory companies' bonds had recently slid down into the lower 70s from prior levels above 90 on investor fears - aggravated by disappointing Idearc quarterly earnings - that the worsening economic picture will lead to a cutback in customer ads in phone books.

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