Dana bonds rise on completed restatements; terms emerge on LPL, IdleAire deals

By Paul Deckelman and Paul A. Harris

New York, Jan. 3 - It was back to work Tuesday, the first trading session of the new year, but market participants reported a generally restrained level of activity as people trickled back in after a long holiday weekend - which had followed an even longer period of about two weeks at the end of December in which not much was really going on, even when people were at the office.

The secondary market's major mover was probably Dana Corp., whose bonds rose in the wake of the Toledo, Ohio-based automotive systems company's Friday announcement that it had completed the previously announced restatements of its results going back to 2000, which caused Dana's ratings to be taken off negative CreditWatch by Standard & Poor's.

Overall, sources gave various spots on the broad market. However all agreed that activity was light.

One source marked high yield unchanged on the day.

Another said that the broad market was up as much as a quarter of a point.

The primary market, meanwhile, produced next to no news, a fact that did not seem to take high yield syndicate officials by surprise.

"I think you will start to see a pretty good build-up in the forward calendar," one said late in the day.

Fresenius seen bringing €700 million

Although there were no official announcements, a buy-side source in Europe told Prospect News early in the day that Germany's Fesenius AG, a provider of kidney dialysis products and services, is expected to launch a €700 million bond offering next week, via Credit Suisse First Boston.

Later in the session a sell-side source in the United States said that, indeed, such a deal has been heard to be in the works.

Proceeds will be used to help fund the acquisition of Nashville, Tenn.-based dialysis company, Renal Care Group, Inc.

Last year's business

Although no issues priced on Tuesday terms were heard on a pair of bond deals that were completed during the market's dormant period between Christmas and New Years Day.

IdleAire Technologies Corp. priced a $320 million issue of seven-year senior secured discount notes with warrants last Wednesday.

The non-rated notes priced at 73.372 to yield 13%. There was no official price talk.

Jefferies & Co. ran the books for the deal from the Tennessee-based privately held research and development company servicing the long-haul trucking freight industry.

Also last Wednesday LPL Holdings, Inc., a holding company for Linsco/Private Ledger Corp., priced a $330 million issue of 10-year senior subordinated notes (Caa1/CCC+) at par to yield 10¾%.

Again, no official price talk had been issued.

Goldman Sachs & Co. ran the books for the acquisition deal from the San Diego-based independent brokerage firm.

Dana higher

Back among the secondary names, the market "got off to something of a so-so start," said a trader. "In a couple of days, we'll get back to whatever amounts to normal in these markets, but for now it's still a little bit spotty."

"There wasn't much to report on the first day of the year," another trader opined. "It was pretty quiet."

One name which was seen moving around was Dana, following the announcement about the restatements - which actually came during Friday's extremely light and abbreviated pre-holiday session - and the S&P action minimizing the likelihood of a downgrade.

A market source quoted the company's 6½% notes due 2009 as having risen to 83 bid from prior levels around 80, while its 5.85% notes due 2015 were a point better at 72. He also saw Dana's 8½% notes due 2008 at 85 bid, up from 83.25 previously, and its 7% notes due 2029 at 72.5, up half a point.

A trader observed the 61/2s at 82.5 bid, 83.5 offered, up from Friday's pre-news levels around 80 bid, 81 offered, and pegged the 7% notes 1½ points better on the day at 72.5 bid, 73.5 offered.

"There was a little bit more movement in the shorter paper because it's closer to maturity," he said. "If they can pull it off [restating the results and continuing to turn the company's fortunes around], it gets paid off first," although he said the market would be carefully scrutinizing Dana's upcoming quarterly results. "They've still got some wood to chop," he said.

A trader at another desk, however, saw the 5.85s at 71.5 bid, 72.5 offered, but said that it had most recently been seen around 70.75, so "it looks up maybe half a point on the day."

He was not too impressed with the move. Noting that although S&P affirmed the company's ratings and did remove it from CreditWatch, "the outlook is still negative. I don't think it's the greatest news in the world for them, so I don't think it would have moved too much on it, but that's what it is."

Dana said Friday that had completed the previously announced restatements of its financial statements for the first two quarters of 2005, for 2004, and prior years, and had filed amended annual and quarterly reports with the Securities and Exchange Commission. It said the total reduction in net income after tax for all periods restated was $44 million, and it said it expects to file its results for the 2005 third quarter later this month.

The company said the changes were caused by improper accounting for customer pricing increases and supplier reimbursement costs in Dana's commercial vehicle unit.

Dura lower

Also in the automotive sphere, the bonds of Dura Automotive Systems Inc. were seen lower, although a trader said that he had seen "no news" about the Rochester, Minn.-based automotive systems manufacturer. He saw its Dura Operating Corp.'s 9% notes due 2009 down two points at 54.5 bid, 55.5 offered.

A market source saw those bonds ending at 55.5 bid, down from 57 on Friday, while Dura's 8 5/8% notes due 2012 backtracked to 81.875 bid from 82.75.

At another shop, a market source quoted the Dura 9s down a full 2½ points on the session, at 56 bid.

General Motors Corp.'s "initially pushed up a point," a trader said, although the automotive giant's paper ended up only ¼ point higher when the dust had settled.

He saw GM's 7.20% notes due 2011 start the day at 69.5 bid, get as good at 70.5, but then drop back to end essentially little changed, while its benchmark 8 3/8% issue due 2033 opened at 66.25 bid, rose to 67, and ended at 66.5, up 1/4.

Pilgrim's Pride steady on earnings news

Outside of the automotive area, Pilgrim's Pride Corp.'s announcement that it will cut its fiscal first-quarter earnings outlook and withdraw its previously announced fiscal 2006 forecast apparently caused little movement in the Pittsburg, Tex.-based poultry producer's bonds.

A trader pronounced the 9 5/8% notes due 2011 "about unchanged," at 106 bid, 107 offered, while a market source saw the bonds down a quarter point at 105.75.

A trader at another shop meantime estimated the bonds down maybe a point at 106 bid, 107 offered, while its 9¼% notes due 2013 were a point easier at 105.5 bid, 106.5 offered. "The 9 5/8s have a bigger coupon, but they have some call thing going on," he said.

While the bonds were generally not much moved, the company's New York Stock Exchange-traded shares swooned by $7.80 (23.52%) on Tuesday to end at $25.36. Volume of 6.2 million shares was nearly nine times the norm.

Pilgrim's Pride slashed its earnings estimate for the fiscal first quarter ended Dec. 31 to a range of 36 cents to 41 cents per share, excluding one-time charges and tax benefits - well down from its original estimate of between 75 cents and 85 cents per share.

That will also cause it to scrap its guidance of $3.50 to $4 per share for the full 2006 fiscal year that ends on Sept. 30. The company plans to release amended guidance when it also releases its quarterly financial results on Jan. 23.

Calpine keeps rising

In the distressed precincts, Calpine Corp. bonds continue their recent firming trend, with one market-watcher having the company's 10½% notes due 2006 at 46 bid, well up from 43.5 at the end of last week, and its 7 5/8% notes, also due 2006, at 45 bid, up from 43. He saw the company's secured bonds maybe a quarter-point better, with its 9 5/8% notes due 2014 at 102.25 and its 8½% notes due 2010 at 82.

He saw its longer-tenured subordinated bonds pretty much unchanged on the day, with the 8 5/8% notes due 2010 steady at 31 bid, its 8½% notes due 2008 status quo at 38 and its 8½% notes due 2011 likewise unmoved at 31 - but noted how the latter issue has moved all the way up to its current levels from levels around 22 bid on Dec. 19, the day before the troubled San Jose, Calif.-based power generating company - as expected - sought Chapter 11 protection from its bondholders and other creditors.

A trader in distressed notes saw the relatively short-maturity unsecured bonds, such as the two 2006 issues, the 7 7/8% notes due 2008 and the 7¾% notes due 2009 all trading in a 44-46 context, while the 8½% notes due 2008 were at 37 bid, 39 offered and the 8 5/8s of '10 and the 81/2s of '11 around 30-32.

"The reason for the rise is purely technical," he declared, probably connected with transactions in the credit default swaps market. Since many more protection contracts are written than there are bonds outstanding, many of them bought by derivatives speculators not currently holding the bonds, that creates a market for those bonds to cover such contracts, pushing their price higher than they normally would be.

The trader said there must be some CDS contracts out that require delivery of the shorter-maturity bonds to pay off, otherwise, he said, "there's no reason for the '09s and below to be 13 points or so ahead of the 81/2s of '11, since the bonds are all supposed to be pari passu since the company is in bankruptcy.

Another trader, who saw Calpine's 10½% '06 notes having pushed up to 44.5 bid, 45.5 offered from prior levels at 43 bid, 44, and noting the steady rise of those bonds and most other Calpine issues since the bankruptcy filing, agreed that "there wasn't anything news-related [moving the bonds] - it was more like this CDS stuff.

"There really hasn't been any news that would catapult these bonds to be at levels significantly higher than they were in the distressed scenario before they filed for bankruptcy, so I think it's more a technical issue than a fundamental issue," he said, adding that "I think it's mimicking what happened with Delphi [Corp.]," whose bonds shot up following the Troy, Mich.-based automotive electronics manufacturer's October bankruptcy due to the impact of the CDS market, with contract holders scrambling to acquire the bonds in order to settle their contracts.

Stephen G. Moyer, the head of research for Imperial Capital LLC in Beverly Hills, Calif., agreed that "with Delphi there was certainly a lot of consternation about how to settle all that. There were vastly more CDS contracts written than bonds outstanding." He noted that "similar issues are impacting Calpine right now."

Because CDS market spreads on issues perceived to be troubled typically widen out substantially - raising the price of protection - as things look bleaker for the company issuing the debt that is protected.

But junk marketeers saw that booming market cease to be merely an indicator and actually became a big factor skewing bond trading following the Delphi Chapter 11 filing, which triggered a 30-day period within which people who had bought "single-name" protection contracts had to tender the bonds to the sellers of the contracts in order to receive the promised par value.

This prompted a short squeeze which at one point drove the value of Delphi bonds as high as 70, about double where they had been at the time of the filing. They came back down to about 63 after a group of underwriters set a cash settlement price for the contracts at that level - and then they nosedived down to the low-mid-50s once the 30-day settlement period had passed and there was no further need to buy Delphi bonds, removing the prop which had kept the bonds' price artificially high.

Having seen this happen with Delphi and seeing it going on again with Calpine, Moyer said that "there's going to be a lot of tension" ahead in the high yield market on how to deal with this phenomenon, "given that we've had a systemic change in the market that hasn't been tested through a heavy default cycle" yet.

One example of the type of problems the market may encounter from the proliferating CDS market was seen when Calpine filed late in the day on Dec. 20 - several hours after many previously purchased CDS contracts on Calpine had actually expired, meaning some investors and speculators came close to recovering their investment, but would actually seem to be left empty-handed.

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