Little Traverse Bay deal prices, Fiat also; GM gyrates on cost-cut plans

By Paul Deckelman and Paul A. Harris

New York, Feb. 7 - The Little Traverse Bay Bands of Odawa Indians made a surprise bet on the junk bond market Tuesday and walked away from the table with $122 million after the Michigan-based Native American gaming operator revived a bond deal that had been spiked back in November and priced a quickly-shopped offering of eight-year notes. Also pricing was a big euro deal from Fiat SpA and a slightly upsized offering from Windsor Financing LLC. And price talk emerged on Linens 'n Things Inc.'s upcoming eight-year bond deal.

In the secondary marker, the bonds of General Motors Corp. and GM's financing subsidiary, General Motors Acceptance Corp., were seen bouncing all around before ending several points lower on the day, despite the struggling automotive giant's morning announcement of a slew of cost-cutting measures, including halving its fat $2 per share annual dividend and sharply cutting the salaries of chairman and chief executive officer G. Richard "Rick" Wagoner and several other top execs. Traders said that a warning late in the day from Moody's Investors Service - which noted critically the nearly four-month lag so far in GM's efforts to sell a controlling stake in GMAC - helped to grease the skids under the bonds of both companies.

They also saw the embattled bonds of InSight Health Services Holding Corp. rebounding - strongly - from the lows that they hit Friday on worries that coming cuts in Medicare reimbursement rates might severely crimp the finances of the Lake Forest, Calif.-based provider of medical diagnostic imaging services.

Sources marked the broad market unchanged on Tuesday, in very light trading.

Fiat €1 billion tight to talk

In the primary market three tranches of high-yield notes were priced.

The largest came from a subsidiary of Italian car-maker Fiat. Fiat Finance & Trade Ltd. priced a €1 billion issue of seven-year high-yield bonds (Ba3/BB-/BB-) at par to yield 6 5/8%, on the tight end of the 6 5/8% to 6¾% price talk.

Citigroup, Barclays Capital, BNP Paribas and UniCredit Banca Mobiliare were the underwriters for the debt refinancing and general corporate purposes deal.

Early Tuesday morning a source in Europe said that there had been €1.5 billion in the order book for the new Fiat 6 5/8% bonds due 2013.

Little Traverse Bay returns

Elsewhere The Little Traverse Bay Bands of Odawa Indians priced a $122 million issue of 10¼% eight-year senior notes (B2/B) at 98.664 to yield 10 ½%.

There had been no official price talk.

Banc of America Securities ran the books.

Proceeds will be used to fund costs associated with the issuer's new gaming facility.

The issuer had intended to launch a $195 million offering of eight-year notes last October, but abandoned the attempt due to market conditions.

Windsor Financing upsizes

Tuesday's smallest tranche came as a part of Windsor Financing LLC's upsized $320.5 million two-part offering of notes, which included one high-yield tranche.

The company sold an upsized $52 million tranche of 6.927% 10-year subordinated amortizing notes (Ba2/BB) with a weighted average life of 7.1 years. The deal priced at par resulting in a yield of 6.987% on a semi-annual equivalent basis.

The notes came at a 240 basis points spread to Treasuries, on the tight end of the Treasuries plus 240-245 bps price talk. The tranche was upsized from $50 million.

In addition the company sold $268.5 million of 5.881% senior amortizing notes due July 15, 2017 (Baa3/BBB-), with a weighted average life of 5.9 years, at par to yield 5.924% again semi-annual equivalent.

The investment-grade tranche came at a 140 basis points spread to Treasuries, on the tight end of the Treasuries plus 140-145 bps price talk. The issue was upsized from $266 million.

Goldman Sachs & Co. ran the books for the deal which the company brought in order to pay down debt related to project financing.

A breather

Tuesday's action left just $1.2 billion in three tranches on the forward calendar - all of it expected to price before the end of the present week.

Linens 'n Things Inc. talked its $650 million offering of eight-year senior secured floating-rate notes at three-month Libor plus 575 basis points.

The notes (B3/B) are expected to price on Wednesday via Bear Stearns & Co. and UBS Investment Bank.

Also in the market is Drummond Cos. Inc. with a $400 million offering of 10-year senior notes (Ba3/BB-) via Citigroup, Merrill Lynch & Co.

Some observers had expected the deal to price on Tuesday, but well after the close no terms had been heard.

Drummond has talked the notes 7¼% to 7½%.

The only other deal thought to be in the market as of Tuesday's close is Stratos Global Corp.'s $150 million of seven-year senior notes (B2/B-) via RBC Capital Markets and Banc of America Securities. The notes are talked at a yield in the 9¾% area.

High-yield syndicate officials say that the market is quiet. Several attribute the dearth of activity to JP Morgan Annual High Yield Conference underway in Miami.

"February is usually a quiet month," one source said, but added that there remains the possibility of seeing drive-by deals from double-B rated issuers.

"The backlog is so light," the source said. "It's got to run up at some point but I don't think we'll see it get to anywhere near the level we saw in January."

Little Traverse edges up in trading

When the new Little Traverse Bay Bands 10¼% notes due 2014 were freed for secondary dealings, a trader saw them at 98.75 bid, 99.25 offered, up slightly from their 98.664 issue price earlier in the session.

The new Windsor Financing notes were not seen in aftermarket dealings.

The trader also saw HCA Inc.'s 6½% notes due 2016 at 99.25 bid, 100.25 offered, down slightly on the bid side from Friday's 99.57 issue price. He saw Covalence Specialty Materials new 10¼% notes due 2016 at 100.5 bid, 101.5 offered, up a bit from Thursday's par issue price. And he quoted Sanmina-SCI Corp.'s 8 1/8% notes due 2010 still trading at a premium to their recent par issue price, at 101.25 bid, 101.75 offered.

GM gains, then retreats

Back among the established issues, traders noted that things were "pretty darn quiet," with "not a lot going on," as one of them put it, with many portfolio managers and other buyside decision makers off attending a JP Morgan high yield conference

The key names of the day were GM and GMAC, both of which rose initially after GM unveiled a multi-pronged program for cutting additional costs and making the struggling company more competitive, on top of the $6 billion of annual cuts it put into place last year. Among the new high-profile measures the world's largest carmaker announced was cutting its fat stock dividend in half to $1 per share per year from $2; lowering the salaries of chairman and chief executive officer G. Richard "Rick" Wagoner and several other top executives, making cuts in the executive pension plan, and making changes in the health plan for retired salaried workers (see related story elsewhere in this issue).

That news initially pushed the GM and GMAC notes up, said a trader, who quoted GM's benchmark 8 3/8% notes due 2033 as having pushed up a point to peak levels at 74.5 bid, 75.5 offered and GMAC's several series of bonds up a like amount.

However, he said, "they definitely weakened as the day progressed," giving up all of their early gains and then some to finish at 71.75 bid, 72.75 offered, down nearly two points from their 73.5 bid, 74.5 offered opening.

The trader noted that the damaging blow that stopped GM's upside momentum dead in its tracks and sent the carmaker's bonds skidding downward was Moody's assessment that "the passage of time [between October's announcement that GM wanted to sell a controlling stake in GMAC and the present] suggests the difficulty of successfully completing the transaction, and may indicate a declining probability that it can be structured in such a way as to lead to an upgrade of the current Ba1 rating."

Moody's said that while GMAC's best chance to return to an investment-grade rating would be through the sale of a majority stake to a highly-rated strategic investor - but the agency cautioned that "the sale of a majority interest to a financial investor-led consortium would be unlikely to lead to an upgrade from the current Ba1 rating." Moody's in that regard echoed similar sentiments voiced by Standard & Poor's and by Fitch Ratings.

With GM clearly running into more trouble in selling the controlling GMAC stake than it originally envisioned, and "with GMAC such a net income provider," the trader said, "why not just keep it at this point?" since it is the only part of the company currently making money in North America and the ratings agencies are unlikely to upgrade GMAC if it is sold to either the Cerberus/Citigroup-led buyout group or the Blackstone /Wachovia - led group, the only two buyers that seem to have emerged so far.

Another trader agreed that "GM really moved around," quoting the 8 3/8s at 72 bid, 73 offered, "down a couple of points," while GMAC's flagship 8% notes due 2031 fell to 96.5 bid, 97.5 offered from its prior levels at 99.5. He also saw GMAC's 6¾% notes due 2014 likewise down two points, at 91.5 bid, 92 offered.

A market source pegged GMAC's 6 7/8% notes due 2012 and the parent company's 7 1/8% notes due 2013 each down 1½ points, at 92 bid and 76 bid, respectively.

While the GM benchmark bonds were down 1¼ points at 72.25 bid,73.25 offered, yet another trader said, "GMAC took it the worst of all," its 8s seen down 2½ points at 96.25 bid, 96.75 offered. He said the Moody's outlook piece was "why GMAC took a whacking." In cautioning against any deal led by an equity buyout shop, he said, "they want to see [GMAC] go into as strong hands as possible, that's why this is happening."

GM pulls down other autos

GM's slide helped lead the other automotive names lower, a trader said, "with all the auto guys kind of shedding points at the end of the day."

He noted that Visteon Corp.'s 7% notes due 2014 dropped to 75.75 bid, 76.75 offered from Monday's closing levels around 77.

Another trader saw Visteon's former corporate parent, Ford Motor Co., lower in sympathy with GM. The Ford 7.45% notes due 2031 and its Ford Motor Credit Co 7% notes due 2013 each down ¼ point, at 72.75 bid, 73.25 offered and 90 bid, 90.5 offered, respectively.

InSight rebounds further

Outside of the auto sector, the big news of the day seemed to be the rebound in InSight Health's 9 7/8% notes due 2011. On Friday those bonds had swooned to 45 bid, 47 offered, down sharply from levels earlier in the week around 67.5 bid, 68.5 offered. On Monday InSight was up a little - perhaps about two points or so, to the 47-48 area - and on Tuesday, that rise continued, with the bonds jumping to 52 bid, 54 offered.

"It continues to bounce," a trader said, noting that "everyone was concerned [Friday] with Medicare cuts, but right now it looks like the Bush administration is going to have trouble getting any kinds of cuts" in popular entitlement programs like Medicare through Congress - particularly in an election year where the full House and one-third of the Senate are up for re-election.

The trader saw Radiologix Inc.'s bonds up two points at 72 bid, 75 offered, "so that sector had a bounce."

Yet another trader, though suggested that it might just be a dead-cat bounce, or perhaps just short covering on a massively oversold sector of the market.

A trader saw Mothers' Work Inc.'s 11¼% notes due 2010 at 99 bid, a two point gain. He attributed the rise in the Philadelphia-based maternity wear retailer's bonds to better January same-store-sales numbers released several days ago, and positive guidance the company put out.

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