Bonds firm with stocks, Treasuries; autos up despite GM, Ford sales drop; Beazer, Station sell drive-bys

By Paul Deckelman

New York, June 1 - High-yield bonds were stronger pretty much across the board Wednesday, traders said, taking their cue from better stocks and red-hot Treasuries, which rose on suggestions the Federal Reserve might be nearing the end of its interest rate-raising campaign.

The auto supplier sector showed particular strength and all but ignored announcements of further sales declines and coming production cutbacks by General Motors Corp. and Ford Motor Co. Even the bonds of those underperforming carmakers themselves were seen higher.

In the primary market, there was a pair of drive-by deals, one for Beazer Homes USA Inc. and the other for Station Casinos Inc. The latter deal was an add-on to an existing tranche of bonds.

Station, a Las Vegas-based gaming operator with a string of casinos located away from the glitzy Las Vegas Strip and catering primarily to local-market gamblers rather than high-rollers from out of town and other tourists - sold $200 million of the bonds as an add-on to its $350 million of 6 7/8% senior subordinated notes due 2016 originally sold in February 2004.

The bonds priced at 102.25, at the cheap end of pre-deal market price talk, for a yield to worst of 6.455%.

The company plans to use the proceeds from the new issue to repay bank debt and for general corporate purposes.

The bonds were brought to market by a syndicate led by joint bookrunners Banc of America Securities and Deutsche Bank Securities.

The new deal was not formally announced beforehand; word that Station was bringing the add-on offering percolated through the market around mid-afternoon ET and it priced several hours afterward.

The day's other quickie pricing came from Beazer Homes, which announced early in the morning that it would sell $300 million of senior notes due 2005 and use a portion of the proceeds to repay its existing $200 million term loan, which is scheduled to come due in 2008, and the remainder for general corporate purposes. The Atlanta-based homebuilder's deal was quickly marketed to potential investors via a mid-morning ET conference call, and then priced Wednesday afternoon via sole book running manager UBS Investment Bank.

The bonds carry a 6 7/8% coupon and priced at 99.096 to yield 7%. Pre-deal market price talk was 6 7/8%.

When the new Beazer bonds were freed for secondary dealings, they didn't get very far from their issue price; traders saw them going home at 99 bid, 99.5 offered.

The new Station Casinos' 6 7/8% add-on notes priced too late in the session to appear in the aftermarket, said market participants.

Secondary firm

Back among the established issues, the market "was very firm, and had a good tone," a trader said. He rhetorically asked whether there were any significant losers, and then answered his own question: no.

"There was a lot of stuff that was up in the day, though it kind of tailed off at the end," another trader said, though on the whole, he saw most names at least modestly higher.

Bonds moved up in tandem with a rise in stocks that saw the Dow Jones Industrial Average rise 81.58 points, while the Nasdaq jumped 19.64 points and the S&P 500 Index advanced 10.72 points. Treasuries meanwhile also recorded robust gains, on a combination of factors - weaker-than-expected manufacturing data as well as by comments from Dallas Fed Bank President Richard Fisher suggesting at the Federal Reserve was in the "8th inning" of its interest-rate tightening cycle, which means the next Federal Open Market Committee meeting on June 30 would be the ninth and presumably final "inning" of rate tightening.

Autos gain

With all of that going on, the junk market caught a bid - and one particular standout sector was the autos, which refused to be dragged down even by negative monthly sales data from GM and Ford.

The sector, he said had "no reaction" to the less-than-stellar numbers from GM and Ford. Among the gainers were Collins & Aikman Products Co., whose 10¾% senior notes due 2011 moved up to 44.5 bid, 45.5 offered from prior levels around 41.5 bid, 42.5 offered, although he opined that the movement in the Troy, Mich.-based auto interior components maker's bonds was "probably more due to positioning in terms of CDS [credit default swap] contracts rather than any real news."

Delphi Corp. bonds "had a little run-up there," he said, before coming off their highs late in the session. Even though Delphi, a former GM subsidiary, is still heavily dependent upon GM, which accounts for 50% of its sales, and GM reported bad sales figures and coming production cutbacks, "Delphi's bonds went up two or three points in the hour or so following the release of GM's numbers, and then they proceeded to retract and finish basically up a point."

The Troy, Mich.-based automotive electronics maker's 6½% notes due 2013 traded as high as 75 bid from prior levels at 72.5 bid, 73.5 offered, before easing from that peak level to end at 73.5 bid, 74.5 offered.

He also saw that Visteon Corp. "did nothing"; meantime Dura Operating Corp.'s 8 5/8% notes due 2012 closed at 91 bid, up a point, and ArvinMeritor's 8¾% notes due 2012 were half a point better at 100.25 bid, 101.25 offered.

"I don't think GM and Ford spooked anyone," another trader declared. He also saw Delphi bonds doing better despite the troubles of its erstwhile parent, with the company's 7 1/8% notes due 2029 firming to 70 bid, 71.5 offered from 68.5 bid, 69.5 offered, while its 6.55% notes due 2006 finished a quarter point better at 96.5 bid, 97.5 offered.

He saw Visteon's 7.95% notes slated to come due in August holding steady at 100.25 bid, 100.5 offered, while noting that "those had begun moving [up to their current levels] last week on the news" that Ford will bail out its struggling former subsidiary by taking two dozen unprofitable, high labor-cost factories off its hands, and even fronting Visteon the $250 million it needs to redeem those 7.95s. He also saw Visteon's 8¼% notes due 2010 hanging in there at 83 bid, 85 offered, pretty much unchanged from late last week, "so I didn't see tons of weakness there" in the auto sector.

Even GM and Ford themselves were actually firmer, despite the sales numbers the respective companies reported.

GM's benchmark 8 3/8% notes due 2033 were seen half a point higher at 78 bid, 79 offered, while Ford's flagship 7.45% notes due 2031 finished at 85 bid, 86 offered, up a point and a half.

On the face of it, the numbers the two companies reported Wednesday would seem to give no reason for their bonds to go up, or the bonds of any of the automotive supplier companies dependent on GM and Ford. Both saw their respective sales slip again during the month, as an increasing number of car, truck and SUV buyers continued to vote with their feet and desert the two biggest U.S. automakers, in favor of their Japanese rivals.

GM's company-wide sales dropped 1.6% in the month versus a year ago, and are down 5.2% on the year so far. Although GM's pricey Cadillac brand cruised to its best sales month in 12 years, given a jump-start by its popular premium-priced Escalade luxury SUV, GM's overall truck sales - a key area for the Detroit-based company - were down 7.8%.

Things were even worse at Number-2 carmaker Ford. Even with extremely strong sales for its popular Mustang coupe - up 47% from a year ago - and a 4.3% gain in its higher-end cars sold under the Lincoln and Mercury nameplates, Dearborn, Mich.-based Ford's overall vehicle sales were down almost 3% in May from a year ago, and cumulative 2005 sales ran 4% behind the first five months of last year. Ford was undone by a 6.4% drop in truck sales.

In response to their still-weak sales, GM said it will cut third-quarter output by over 100,000 vehicles, or 9%, while Ford will lower its third-quarter production by 17,000 vehicles, or 2%.

Despite all of that nominally negative news, the first trader said, "the bonds have a fat yield, and with these interest rates down so low," - 10-year Treasuries pushed further below 4% - "it's floating a lot of boats. People are again reaching for some yield, and that puts quite a tone under the market."

Telecoms also rise

Not only autos benefited from the generally positive tone; the trader saw telecoms for instance, up, with Dobson Communications' 8 7/8% notes due 2013 1½ points better at 82.75 bid, 83.75 offered, while Dobson's American Cellular unit's 10% notes due 2011 were a point better at 98 bid, 99 offered.

And at another desk, Qwest Communications International Inc.'s 6½% notes due 2013 were seen at 81 bid, up more than four points, despite no one having seeing any fresh positive news out about the Denver-based regional Bell operating company.

Amkor Technology Inc. continued to firm for a second straight day, helped by the West Chester, Pa.-based high tech company's SEC filing last week in which it revealed its lenders had agreed to give it more covenant flexibility. Its 9¼% notes due 2008 were 1½ points better at 91 bid, 92 offered.

Pathmark better

And Pathmark Stores' notes were seen half a point better, at 98 bid, 99 offered, after the company reiterated its support for the proposed $150 million investment that billionaire California supermarket baron Ron Burkle plans to make in the Carteret, N.J.-based supermarket chain. It urged its shareholders to approve the deal with the grocery store mogul's Yucaipa Cos. when Pathmark holds its annual meeting on June 9, and took issue with a recent report by Institutional Shareholder Services, which urged rejection of the deal.

ISS, a shareholder advisory firm, had said that Pathmark management had not "extracted maximum value for shareholders from the bidding process" that the company went through for three months before the Yucaipa investment was announced.

Pathmark said that before agreeing to the Yucaipa deal, it had gone through "a fair and extensive process in evaluating strategic alternatives." Pathmark announced in December that it had hired Dresdner Kleinwort Wasserstein to help it evaluate various strategic options, up to and including the possible sale of the whose company.

The Yucaipa deal, which was announced on March 24, falls well short of that - in return for its $150 million investment, the Los Angeles-based private investment firm will initially take a 40% stake in Pathmark, with the option of later increasing its position.

That equity infusion will, in turn, provide the store operator with sufficient liquidity to refurbish and expand many of its 142 stores, which operate primarily in the New York and Philadelphia metropolitan areas.

Pathmark recently rejected an $8.75-per-share acquisition bid from an unidentified would-be buyer, letting the proposal expire by the May 24 deadline set by the mystery suitor. In rejecting that offer and reconfirming Burkle's bid, Pathmark cited a proposed per-share price below its stock's recent trading prices (at or just below $9.50); a dependence by the would-be buyer on debt financing, while Yucaipa has ample cash already on hand, and the deal's unlikely completion for several months - versus mid-June for the Yucaipa transaction - as reasons for the rejection.

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