Ford little moved despite big ABS sale; Chemtura hit on Chapter 11; Lamar plans deal; funds add $375 million

By Paul Deckelman and Paul A. Harris

New York, March 19 - Ford Motor Co.'s bonds were seen little changed on the session, having not gotten much of a boost from the news that the carmaker had bolstered its capital position by selling nearly $3 billion of asset-backed securities.

Also in the automotive realm, traders saw no real gains in the bonds of beleaguered automotive supplier companies like Lear Corp. or American Axle & Manufacturing Holdings Inc. on the news that the Treasury Department will spend $5 billion to prop up that industry, which has been decimated by the falling sales and subsequent production cutbacks of its carmaker customers.

Freeport-McMoRan Copper & Gold Inc.'s bonds were seen both better and, as usual, quite active, helped by rising prices for commodities including its key products, copper and gold.

On the downside, Chemtura Corp.'s bonds traded off on the news that the Middlebury, Conn.-based chemical manufacturer filed for Chapter 11, the latest in a group that includes such names as Lyondell Chemical Co. and Tronox Inc.

In the primary arena, Lamar Advertising Co. announced plans for a $250 million note issue - expected to be upsized to $350 million, the proceeds of which will be used to repurchase convertible debt. The notes are expected to price Friday morning. The company's established bonds weakened on news of the upcoming deal.

Junk funds show $375 million inflow

And as trading was wrapping up for the session, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday some $375 million more came into the weekly-reporting funds than left them - the first inflow after three straight weekly outflows, including the $80 million cash exodus seen the previous week, ended March 11.

Those three outflows totaled about $996 million, according to a Prospect News analysis of the AMG figures, and had represented a clear break from the previous trend, which had seen seven consecutive inflows since the year began, totaling $3.608 billion up through the week ended Feb. 18. That strongly positive pattern had also seen an astounding 12 consecutive weeks of inflows dating all the way back to the week ended Dec. 3 and totaling $5.425 billion, according to the Prospect News analysis.

Including the latest week's inflow number, the year-to-date net inflow for the weekly-reporting funds has been brought back up to $2.987 billion, according to the analysis, from $2.612 billion the week before.

The massive multi-billion-dollar flow of funds into high yield is seen as having been primarily responsible for the relatively strong pace of new issuance and the solidly positive year-to-date returns that were seen in Junkbondland for about the first two months of the year - although both of those trends have moderated lately - as high yield sought to recover from last year's staggering 25%-plus loss and sharply reduced primary activity.

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, the week's net inflow from domestic and foreign-based high yield funds totaled $388.5 million, in stark contrast to the previous week's $273.7 million outflow. That brought its calculation of the year-to-date net inflow total up to $2.65 billion from $2.26 billion previously.

EPFR's managing director, Brad Durham, while noting the favorable turnaround in the junk-fund numbers, declared that "the big news, though is the outflows from money market funds for the week -- $42 billion." He added that "now we know how investors have funded their foray into equities this week."

While the EPFR junk figures usually point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers generally differ somewhat due to EPFR's inclusion of some non-U.S. funds in its universe.

Any and all cumulative fund-flow totals can include unannounced revisions and adjustments to figures from prior weeks.

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 comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash coming into the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

People like bonds

"The AMG number was pretty decent," remarked a fund manager from a high-yield mutual fund.

Investors are allocating money to bonds in general, the buy-sider said.

"They just like the asset class.

"Goldman Sachs wants to take the money they raised for private equity and put it in distressed debt," the investor added.

"All the private equity guys want to get into distressed debt.

"They realize they can be higher on the capital structure and still get equity-like returns."

Meanwhile the loan mutual funds also saw the cash tide turn positive.

AMG reported that loan funds saw $19 million of inflows during the week to Wednesday, according to a market source. The inflow trailed two straight weeks of outflows from the bank loan funds, totaling $129 million.

Given that the S&P 500 is up more than 16% in the past eight sessions, Prospect News quizzed the leveraged markets buy-sider as to why money appears to be flowing into debt securities, rather than into stocks, which have rallied so notably of late.

"The stock market rally is a bear market rally," the investor declared, adding that the S&P 500 stock index may be up 16% during the past eight days, but lost 25% of its value during the year to March 9.

Market indicators mostly firmer

A trader saw the widely followed CDX High Yield 11 index of junk bond performance - which was up ¼ point on Wednesday - off by ¼ point on Thursday, quoting it at 69 3/8 bid, 69¾ offered.

However, the KDP High Yield Daily Index meantime continued upward, gaining 49 basis points to end at 51.67, while its yield tightened by 21 bps to 13.92%.

In the broader market, advancing issues widened their lead over decliners, to a nearly two-to-one margin.

Overall market activity, measured by dollar-volume totals, fell by nearly 24% from the levels seen in Wednesday's session.

Noting the reduced volume levels, a trader called the session "a little boring."

But another trader said that "the whole market was 1 to 2 points higher. The market was definitely firmer."

In the trading of cash bonds, more names were up than were down, a buy-side source noted.

One that wasn't up was the HCA Inc. 9 1/8% bond due 2014, which closed Thursday at 93½ bid, 94½ offered, versus Wednesday's close of 93¾ bid, 94¾ offered, the investor said.

Ford sits in neutral

A bond trader saw little activity in Ford Motor Co.'s paper, with its 7.45% bonds due 2031 staying "around the 28 range, not very active today," getting not much of a boost from the news that the Dearborn, Mich.-based Number-Two domestic carmaker had sold nearly $3 billion of asset-backed debt.

"The long ones didn't really jump up, and the bank debt seems to be around 38-40, pretty much where it's been hanging around." He also noted that Ford stock was up only marginally, "so nobody cared there." Ford's New York Stock Exchange-traded shares, after having been up as much as 12.5% earlier in the session, closed out trading at $2.51, up 4 cents, or 1.62%. Volume of 60 million shares was about one-third more than usual turnover.

He theorized that "it doesn't seem like anybody believes anything of late. We need a little more time for everything to settle in and get some confidence back. Normally, if this [ABS sale] was the only news, you'd see these things jump up in price."

A second trader agreed that the ABS deal "did not really" do anything for the Ford bonds, seeing the '31s unchanged at 28.5 bid, 29.5 offered.

While the Ford corporate bonds were seen pretty much spinning their wheels, the first trader noted that Ford Motor Credit Co.'s "really short" paper like its issue coming due next month, is trading around the 98 area. "Fifty million [dollars] or $100 million of that trades," he said although he added "it doesn't mean a whole lot. People are confident that it will pay off. What does that mean? Everybody breathes a sigh of relief that Ford is able to do something and not get TARP money and not file for bankruptcy."

Auto parts names mostly quiet despite aid promise

Also in the autosphere, the news that the Treasury Department - which has already bailed out ailing Detroit giants General Motors Corp. and Chrysler LLC - is moving to help the battered companies that supply the carmakers with their parts and components, to the tune of $5 billion, was seen by traders providing not much of a jump start to the ailing sector's bonds.

A trader said that he "did not see much activity" in Lear Corp., quoting the company's 5¾% notes due 2014 at 24.5 bid, "only one or two trades." He said that the company's other two issues - its 8½% notes due 2013 and 8¾% notes due 2016 "didn't even trade," at least not in any kind of appreciable size, "so there was not much effect there."

He said of American Axle & Manufacturing Inc.'s 's 7 7/8% notes due 2017 that he "didn't see any trades - just quotes" that pegged those bonds around a theoretical 20 bid, 22 offered level. He saw "one trade" in Axle's 5¼% notes due 2014, at the 22 level, opining that "it seemed to be a non-event in those names."

He said that "people were sort of expecting" moves by Washington to help out the parts makers, who have been absolutely devastated by the steep downturn in sales and production by Detroit's traditional "Big Three" and even other more financially stable carmakers. "They were expecting that [the government] wasn't going to let them go. With trillions of dollars changing hands" in all of the government-funded bailouts, "it looks like the government is there to keep these companies from falling apart. So I don't think anybody was too surprised."

Another trader agreed. Asked if there had been any movement in the auto parts names, he answered "not that I've seen." He noted that the market used to live by the adage "buy the rumor, sell the fact," but said that now, "even when people say things, there's a general skepticism to believe - people want to wait and see if something really happens." He said that when he looked at a list of the day's busiest names, "I certainly didn't see" any of the partsmakers.

On the other hand, another market source, also seeing American Axle's 5¼% notes at 22, called that a 2 or 3 point gain off recent levels, albeit in small trading, and pegged Visteon Corp.'s badly battered 7% notes due 2014 up nearly ½ point on the day in fairly busy dealings to around 7 bid.

MGM shrugs off ratings downgrade

MGM Mirage's seemed firmer despite a ratings downgrade. A trader saw the company's 13% notes due 2013 get up to 81 bid, better by about a point or so from Wednesday's levels.

He said that "definitely, there were a lot of MGM quotes today, which tells me it was pretty active, maybe one of the most very active issues."

A market source at another desk saw the company's bonds mixed, with its 7 5/8% notes due 2017 about 4 points better at 39 bid and its 6 5/8% notes due 2015 up more than 2 points at 38, while its 6% notes coming due on Oct. 1 were down around a point on the day at the 59 level.

On Thursday, Moody's cut MGM Mirage's corporate family rating to Caa2 from Caa1 and the outlook is negative.

The downgrade reflects the very short-term waiver of potential covenant defaults that the Las Vegas-based gaming giant received from its bank lenders and the erosion of liquidity due to a $300 million revolver reduction.

According to Moody's, there is now significant pressure on the company to relatively quickly come up with a plan to obtain additional bank concessions, raise additional liquidity, or pursue a major restructuring of its capital structure.

"Because of these factors, there is a rising probability that as part of a restructuring MGM will have to offer to exchange existing debt for an amount below par as part of any plan to alleviate its liquidity crunch," said Peggy Holloway, Moody's senior analyst, in the rating release.

As was previously reported, MGM Mirage's credit facility waiver allows the company to not comply with financial covenants through May 15.

Also, under the waiver, pricing on the revolver was increased by 100 basis points, the company is prohibited from prepaying or repurchasing any debt or disposing of assets, and the $300 million revolver repayment was made.

Following the expiration of the waiver, the company will be subject to an event of default under the credit facility if it is not in compliance with the financial covenants at March 31, which if adverse conditions in the economy and gaming industry continue, is a likely outcome.

The company said that it intends to work with its lenders to obtain additional waivers or amendments prior to the expiration of this one so as to address potential future non-compliance with covenants.

Chapter 11 chokes Chemtura

On the downside, a trader declared "another one bites the dust" on the news that Chemtura Corp. had sought protection from its junk bond holders and other creditors via a Chapter 11 filing with the U.S. Bankruptcy Court in Manhattan on Wednesday. Chemtura thus becomes the latest in a string of U.S. chemical companies to seek court protection, including Lyondell Chemical Corp., now a unit of LyondellBasell SA, and Tronox Inc.

Chemtura said that it had received a commitment for up to $400 million in debtor-in-possession financing from administrative agent Citibank, NA, enabling it to conduct its usual business during its restructuring. The filing only covered Chemtura and 26 U.S.-based affiliates, with the company's non-U.S. operations not included in the filing.

A trader saw Chemtura's 6 7/8% notes due 2026 trading between 16 and 17 today, with the last bid at 16.25, down from levels around 18 earlier in the week, "so there was some activity in that." Those bonds had originally been issued by one of Chemtura's predecessor companies, Witco.

He saw the 7% notes slated to come due on July 15 which were originally issued by another Chemtura ancestor, Great Lakes Chemical Corp., at 19 bid, which he called "down an awful lot" from its last previous trade earlier in the week, "in the 40s." He said that "these things don't trade every day, but today the 7s traded between 17 and 22" before going home at 19.

But clearly the most active of the company's issues was its own 6 7/8% notes due 2016. The trader quoted them at 26 bid, 26.75 offered going home, after having traded in a 26-27 context for most of the day, "and a lot of transactions."

Before the bankruptcy news, he said, the bonds had been about 3 points higher, in the upper 20s to around 30 on Wednesday. "Realistically," he said, "they were about 1½ points lower on the day, because that's where the big trades [Wednesday] had happened, 1½ points higher" than the Thursday close.

Another trader said that Chemtura "backed off" to the 26 area on the 2016 bonds "down a little, but not huge." He noted that the bonds had already come down to that neck of the woods "in anticipation " that the troubled company would, indeed file for protection; those bonds had begun the month trading around 45 and were as high as 53, or about twice as high as current levels, at the beginning of the year,

"Very often," he said, a Chapter 11 filing leads to a rally in the bonds, on investor relief that the long-awaited other show has finally been dropped and the restructuring process is now finally under way, with the bondholders expected to get something, "but that was not the case today."

Freeport active, and higher

A trader noted that Freeport-McMoRan's bonds, as usual, were among were among the day's most actively traded bonds. "I can't figure it out," he said, "I've never seen a bond stay so long as the continuous 'most active'. It's there every day, trading between $20 million and $60 million bonds."

Thursday was no exception, with the Phoenix-based metals mining company's 8 3/8% notes due 2017 having traded at least $30 million on the session, tops among the junkers, a market source said, quoting them at 92 bid, up 3 points on the day.

The trader saw $31 million traded, at 91 bid.

The source meantime saw the company's 8¼% notes due 2015 push their way all the way up to 95, a gain of more than 3 points.

Freeport's NYSE-traded shares meantime rose as much as 12.5% on the day before coming off that peak to end up $2.17, or 5.73%, at $40.04. Volume of 35 million shares was 1 ½ times the norm.

The rise in the shares and the bonds coincides with surging prices for two key Freeport products, copper and gold. Copper futures for May delivery soared 9.1 cents, or 5.3%, to $1.8075 a pound on the New York Mercantile Exchange's Comex division, spurred by expectations of renewed industrial demand as stimulus spending in the United States and China takes effect, while gold futures for April delivery soared $69.70, or 7.8%, to $958.80 per ounce, their highest level in six months.

Cricket leaps higher

A trader saw Cricket Communications Inc.'s 9 3/8% notes due 2014 trading around 95 bid, which he called up a point or so from prior levels around 93 bid, 94 offered.

A market source at another desk saw the bonds up several points at 95.5 bid, with over $15 million traded. The source saw no news out on the company, a division of San Diego-based cellular provider Leap Wireless International Inc.

Revlon sitting pretty

A trader said that Revlon Consumer Products Corp. "had a very busy day, kind of out of nowhere," seeing the New York-based cosmetics company's 9½% notes due 2011 "up and down" around a 69 bid, 70 offered context.

He said that he had not seen anything that might explain the sudden volume surge - which made Revlon one of the day's more actively traded credits, with some $25 million traded.

The bonds, he said were "basically in the same zone" that they have recently held, "or maybe a touch better."

A market source at another shop called the bonds up a point, at just over 69.

Existing Lamars off as new deal beckons

With Lamar Advertising set to bring its new deal to market, probably Friday, a trader saw the company's existing 6 5/8% notes due 2015 trading between 66 and 68.

He called that down about "2 or 3 points" from Wednesday's levels around 69-70.

Another trader, though, saw the bonds staying around 68, which he called "trading sideways."

New Dole bonds continue rise

A trader said that Dole Foods Co. Inc.'s new 13 7/8% secured notes due 2014 were "grinding higher" on Thursday, continuing the gradual firming trend of recent sessions. He quoted those bonds at 95.75 bid, 96.75 offered, "up a point, or maybe more."

On Wednesday, traders had pegged the bonds at 94.5 bid, 95.5 offered, up from 94 bid, 94.5 offered on Tuesday.

The bonds had been trading at 93ish levels on Monday, after the Westlake Village, Calif.-based fruit and vegetable processing company had priced its upsized $350 million offering of the bonds at 92.883 on Friday.

The CDX High-Yield 11 index finished Thursday at 69 bid, down ¾ of point on the day, according to a high-yield mutual fund manager.

The index will roll into the CDX High-Yield series 12 on March 27, according to a Thursday press release from Markit.

Lamar expected to upsize

In the primary market, the week-long deal drought ended as Lamar Media Corp. stepped forward with a $250 million quick-to-market offer that is expected to upsize to $350 million and price Friday morning.

Lamar Media, a wholly owned subsidiary of Lamar Advertising Co., set price talk for its offering of senior notes due 2014 (existing Ba3/confirmed BB-) at the 12½% area late Thursday.

The deal is expected to be upsized to $350 million and to price with a yield of 12¾%, according to a high-yield mutual fund manager, citing private information.

The books closed at the end of the day on Thursday. Pricing is expected at 9 a.m. ET Friday, pending the assignment of ratings and final sizing of the deal.

JP Morgan is the bookrunner for the debt refinancing deal from the Baton Rouge-based outdoor advertising company.

Proceeds will be used to repurchase some or all of Lamar Advertising's outstanding 2 7/8% convertible notes due 2010 via a tender offer, one or more open market transactions or individually negotiated transactions, or to fund repayment of the notes at maturity. Pending the repurchase Lamar Media expects to temporarily pay down its revolver and maintain any excess amount as cash on hand.

The new notes will be sandwiched between Lamar's existing 7¼% notes due 2013 and its 6 5/8% notes due 2015, said a trader who works for a high-yield mutual fund.

The outstandings trade in the low 80s, the trader added, remarking that the holders of the converts are no doubt ecstatic, the owners of the 2013 notes are likely holding their water and the holders of the 2015 notes, which will have new party ahead of them on the maturity schedule, are probably seething.

Sara Rosenberg contributed to this report.

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