GM up as U.S. money not needed - for now, Ford keeps firming; Dole deal talk out; funds lose $80 million on week

By Paul Deckelman and Paul A. Harris

New York, March 12 - The junk market saw its third consecutive upside session Thursday, taking its cue from a resurgent stock market that got a boost from, among other things, news out of General Motors Corp. - also a prominent junk name.

GM's domestic arch-rival, Ford Motor Co., and Ford's captive financing unit, Ford Motor Credit Co., were also seen higher, continuing to firm in the wake of the carmaker's recent announcement of a $10 billion debt-cutting plan.

Other upsiders included Smithfield Foods Inc.; although the company slid into the red in the fiscal third quarter, the loss was smaller than expected. Such was also the case, traders said, with athletic apparel maker Quiksilver Inc.

On the downside, AK Steel Holding Corp. fell several points on bearish commentary about the company and other junk-rated steelers by J.P. Morgan Chase & Co.

In the primary arena, price talk emerged on Dole Food Co. Inc.'s planned offering of secured five-year notes.

Junk funds show $80 million outflow

Elsewhere two weeks of negative flows from high-yield mutual funds were stanched, more or less.

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

$80 million more left the weekly-reporting funds than came into them.

It was the third consecutive cash exodus, on top of the $660.4 million outflow seen in the previous week ended March 4, which had been the largest since September 2005, a market source said.

Over the past three weeks, the junk funds have now lost some $996 million, according to a Prospect News analysis of the AMG figures - 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 approximately $5.425 billion, according to the Prospect News analysis.

Including the latest week's outflow number, the year-to-date net inflow for the weekly-reporting funds has been brought down to $2.612 billion, according to the analysis, from $2.692 billion the week before.

Commenting on the latest figure, a high-yield syndicate source said: "That's a relatively flat number that could indicate that the tide has turned again."

He compared the latest $80 million outflow to the previous week's much more dire $660 million outflow, or to the $256 million seen during the last week of February.

The three consecutive negative flows come on the heels of a 13-week run of inflows.

Both the CDX rally and the moderating outflows are linked to rallying stock prices, the syndicate source said.

"And all three are linked to the recent strength in the financial sector," the official added.

The massive multi-billion-dollar flow of funds into high yield earlier in the year is seen as having been primarily responsible for the recently strong pace of new issuance, as well as the positive year-to-date returns that were seen in Junkbondland for about the first two months of the year - although that latter trend has recently turned negative - versus last year's staggering 25%-plus loss.

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, the week's outflows from domestic and foreign-based high yield funds totaled $273.7 million, and followed the previous week's $911 million outflow, which the service said was the worst since the second week of last October. That brought its calculation of the year-to-date net inflow total down to $2.26 billion from $2.54 billion previously.

While the EPFR 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; for instance, said EPFR's managing director, Brad Durham, over $100 million of the latest weekly outflow was attributable to non-U.S.-domiciled funds.

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.

Market indicators gain again

The CDX High-Yield 11 index rallied vigorously on Thursday, closing at 69 5/8 bid, up 1 1/8 points on the day, according to a high-yield syndicate official.

The KDP High Yield Daily Index meantime rose by 8 basis points to end at an even 50.00, while its yield tightened by 1 bp to 14.55%.

In the broader market, advancing issues held their lead over decliners, topping them by a better than eight-to-five margin.

Overall market activity, measured by dollar-volume totals, fell by almost 19% from the levels seen in Wednesday's session.

A trader said that "after a very busy day [Wednesday], "today was kind of a lull." He characterized it as "unchanged to maybe a touch better later in the day."

He observed that "liquidity remains difficult. The main spots where there has been liquidity have been the real on-the-run, go-go issues" like the Aramark Corp. 8½% notes due 2015 and the Community Health Systems Inc. 8 7/8% notes due 2015. "Day in and day out, they've been the biggest traders."

In Thursday's dealings, Philadelphia-based food service and uniform provider Aramark's bonds were seen up a point at 88 bid, on top of the previous day's 1½ point gain.

Meanwhile, Franklin, Tenn.-based hospital operator Community Health's bonds, often considered something of a bellwether for the market because of the issue's great size - over $3 billion - widespread distribution, easy tradability and its habit of usually mirroring broader market trends - was seen as one of the busier bonds on the day, with well over $15 million traded. A market source saw them topping the 93 bid level, up more than ½ point on the day, in addition to the previous session's better than two-point jump.

Apart from such popular and normally busy names, though, the trader lamented that "off-the-run stuff has really been difficult to move," and he observed that "it really seems like a lot of people are going the same way on trades. Everyone's on the same side. For the things that are hard to find, there are buyers everywhere, and for the things that are hard to sell, there are sellers everywhere. It's fairly hard to put these trades together on anything that is not the most current issue, or that is not one of the benchmark $1 billion-plus issues."

Noting the change in the market from the headier period of just a few weeks ago when liquidity - as exemplified by the fund-flow numbers - was coming into the market like there was no end, and the present, when liquidity has been slowly draining from the market, he opined that "things that used to jump off the shelves are having a hard time moving."

GM jumps as carmaker spurns bailout

A trader said that General Motors' bonds were better on the news that the troubled automotive giant will not need the $2 billion of federal loan money it had expected to require this month. He saw its 8 3/8% benchmark bonds due 2033 "jump maybe 2 points" to end at 14 bid, 16 offered, while its 7.20% notes due 2011 were up a point at 17 bid, 19 offered.

Another trader saw GM "a little higher," going out in a 14ish context, after having started the day at 13 bid, 13.5 offered.

A market source elsewhere quoted the benchmark bonds up a full 1½ points at 14 bid, in busy dealings, while seeing the 7.20s shoot as high as 20 bid, up 5 points on the day. However, the Detroit giant's 7 1/8% notes due 2013 were seen down 1½ points, ending at 13.5 bid.

Dow Jones Industrial Average component GM's New York Stock Exchange-traded shares meantime zoomed 32 cents, or 17.20%, to end at $2.18, right near the top of the day's trading range, on volume of 26 million shares, nearly 1½ times the usual turnover.

GM's surge helped lead equities to a third straight gain - the first time since November that stocks have done that - with the Dow ending up 239.66 points, or 3.46%, to move back above the psychologically potent 7,000 mark and come to rest at 7,170.06. Broader market indexes were also on the upside, with the Standard & Poor's 500 up 4.07% on the day and the Nasdaq composite index ending up 3.97%.

The GM bonds and shares moved up after the company said that it had informed federal officials that it is for the moment holding its own and will be able to get by without some $2 billion in additional aid that it had requested to get through this month.

GM - which drew $13.4 billion of federal bailout cash as 2008 came to an end - recently said that it needed another $16.6 billion from Uncle Sam to keep operating, including $2 billion just to get through March. However, it said on Thursday that it had managed to step up the pace of planned cost-cutting and had held back on some spending that had been planned for January and February, meaning that - for now, anyway - it would need the first tranche of the additional funding it had requested.

GM's chief executive officer, Rick Wagoner, when asked whether this means that GM will reduce its new request for additional assistance, answered cautiously, telling reporters that "a lot" would depend upon "how the market and the economy goes." While the CEO said that GM had "run a little ahead on some of the cost reduction stuff, which is good . . . at this point the market is still tough."

Ford, credit arm continue to cruise

A trader meantime saw Dearborn, Mich.-based Number-Two domestic carmaker Ford's 7.45% bonds due 2031 up 1½ point, finishing at 28 bid, 29 offered.

However, a second trader said that from where he sat, "the big name that just keeps on moving is Ford Motor Credit." He saw the Ford auto-loan financing arm's 7 3/8% notes due 2011 moving to around a 69.5 bid, 70.875 offered level by the end of the day, well up from intraday lows around 66.5 bid, 68.5 offered.

"That's been going up every day for the past two or three day," He said it had been up about 3 points on Wednesday and "another 3 or 4 points" in Thursday's session. It just keeps pushing higher."

Another big mover among the Ford Credit bonds, a market source suggested, was its 12% notes due 2015, which ended the session at just below 70, well up from earlier levels in the low-to-mid 60s.

Meantime, a trader said the carmaker's own bonds "keep hovering around the same level" to which they had risen over several sessions on last week's news that Ford will look to cut its bloated debt load of nearly $30 billion by over $10 billion through a tender offers and equity conversions.

He saw the flagship 7.45s hanging in around 29. "Every trade has been in a 28.875-29.125 kind of range, up or down give or take 1/8 [point]."

At another desk, trader called the '31s a point better at 27 bid, 29 offered.

Yet another trader said that Ford's long bonds were "a little higher," at 28.5 bid, 29 offered, on "decent volume.

"The point is, they traded more towards the 29 side, than lower."

Ford's NYSE-traded shares meantime gained 14 cents, or 7.14%, to end at their day's high point of $2.10, on volume of 46 million, about normal turnover.

Besides its debt-cutting plan, Ford has had other good news for investors, including Wednesday's announcement that labor-cost cuts agreed to by the United Auto Workers union would save Ford some $500 million annually, and would bring its average cost of production down to around $55 per hour, well below the nearly $70 Ford has been averaging, and not too much above the costs of its "transplant" rivals, the U.S. manufacturing arms of overseas carmakers like Toyota and Honda.

Smithfield holders in hog heaven

Outside of the autosphere, a trader saw Smithfield Foods' 8% notes slated to come due in October up 1 to 1½ points at 98 bid, par offered, helped by a less than expected quarterly loss for the Smithfield, Va.-based pork producer, as well as the company's own bullish assertions about its outlook.

He also saw Smithfield's 7% notes due 2011 up ½ point, trading in a 71-73 context.

However, another market source saw those 7s trading as high as 75.5.

The first trader said that "everything else [in the company's capital structure] was up slightly, but nothing serious."

Smithfield's 7¾% notes due 2013 firmed to just under the 60 mark.

Its NYSE-traded shares meantime jumped by $2.02, or 33.95%, to finish at $7.97, at the top of the day's range. Volume of 7.7 million shares was more than triple the norm.

In the fiscal third quarter ended Feb. 1, Smithfield swung to a loss of $103.1 million, or 72 cents a share, from its year-earlier earnings of $54.5 million, or 41 cents a share. However, the latest results included a charge of 38 cents a share for pork restructuring costs, and excluding such one-time items, the company had an adjusted loss from continuing operations of $21.4 million, or 15 cents per share, well under the predictions by analysts of a loss in the 25-30 cent per share range.

On the company's conference call, its chief executive officer, C. Larry Pope, told investors and analysts that recent cuts in industrywide production capacity had improved pricing, allowing Smithfield to charge higher prices for its products like ham, pork and bacon, while at the same time, key costs were declining. Pope declared that with that combination, "[t]he future is going to be better than the past, and I feel comfortable with that statement."

Pope also reassured his listeners that Smithfield - which cut debt by $300 million during the quarter, ending with total debt of some $3.2 billion and available liquidity of $960 million - would be able to meet its restructured debt covenants.

Quiksilver loss no bother to bondholders

A trader saw Quiksilver Inc.'s 6 7/8% notes due 2015 move up to 44 bid, 46 offered, which he called a 2 point gain, after the athletic apparel maker reported fiscal first-quarter results. Although the Huntington Beach, Calif.-based company reported a wider loss from a year earlier, he said "they beat expectations."

While the company's net loss for the fiscal first quarter ended Jan. 31 swelled to $194.4 million, or $1.53 per share, from a smaller loss of $21.9 million, or 17 cents per share, a year earlier, the latest quarter's results included a loss of $128.6 million related to the disposal of the company's Rossignol winter sports business, which was sold in November and reported as a discontinued operation. Excluding such unusual items, Quiksilver reported a pro forma loss from continuing operations of 7 cents a share, versus the 10 cents per share of red ink that Wall Street analysts, on average, were looking for. It also reported sales for the quarter of $443.3 million - down 11% from $496.6 million, but still better than the analysts' consensus forecast of $435.7 million.

News reports late in the day also said that Quiksilver had hired Peter J. Solomon Co., a New York-based investment bank, to help find funding or an investor.

However, another trader noted that despite the day's gains, Quiksilver "has been drifting lower, from the mid to high 50s" level that it hit earlier in the year on speculation that it might be close to selling its DC Shoes brand to rival apparel maker VF Corp. or that it might even be in talks with Nike Inc. to sell itself outright, down to current levels in the mid-40s as that asset-sale gossip has subsided.

While bondholders were apparently not fazed by the wider loss, the same could not be said for shareholders, who dropped the company's NYSE-traded shares by 21 cents, or 17.95%, to 96 cents. Volume of 2.1 million shares was nearly double the usual.

Steel names down on JP Morgan slam

On the downside, a trader said that AK Steel's 7¾% notes due 2012, which had ended Wednesday at 81.5 bid, 83.5 offered, "opened up lower," and moved down to a closing level "wrapped around 80" at 79.5 bid, 80.5 offered. "They dipped down, and then did bounce up a touch, but I'd call it down 2 points from [Wednesday's] close."

Another trader also saw those bonds down a deuce at 79 bid, 80 offered.

West Chester, Ohio-based AK was among several high-yield steel names - a group that also includes United States Steel Corp. and Steel Dynamics Inc. - whose bonds and shares declined after JPMorgan Chase & Co. cut its earnings estimates for the industry and said that those three junk steelers plus ArcelorMittal could "potentially be at risk of violating their debt covenants" should the metal's prices and shipments fail to recover this year..

Steel Dynamics meantime added to the sector gloom, as the Fort Wayne, Ind.-steelmaker junked its previously announced first-quarter earnings guidance of 5 cents to 10 cents per share of earnings, in favor of a new forecast warning of a per-share loss of 40 cents to 45 cents, citing deteriorating market conditions.

Steel Dynamics' 7 3/8% notes due 2012 dropped by more than 6 points on the day to end at 75.

Dole restructures, sets price talk

In primary activity, Dole Food Co. Inc. set price talk for a restructured $325 million offering of senior secured notes due 2014, on Thursday.

The deal is talked with a 14½% coupon, with the bonds to be priced at a discount to yield 15¾% to 16%.

Call protection was decreased to three years from four years, while the first call premium was increased to par plus the full coupon, or 114.50, from the conventional half of the coupon first call.

In addition covenant changes were introduced.

Books are scheduled to close at 10 a.m. ET on Friday, with pricing expected afterwatds.

Deutsche Bank Securities and Banc of America Securities are joint bookrunners for the debt refinancing deal.

All ahead slow

Beyond the Dole price talk, there was no primary market news on Thursday, sources said.

Asked if the week's rally in stock prices, which provided a lift for the CDX, would result in a more active forward calendar a high-yield syndicate official said "Probably not just yet."

Continued strength in stocks might result in some new deal activity next week, the source added.

Quizzed as to what's ailing the primary market, this official took up with the chorus of voices which has been ringing throughout the week invoking last Friday's truncated Plains Exploration & Production Co. issue of 10% senior notes due 2016, which priced at 92.373, and immediately traded down.

As a result of the poor performance of Plains Exploration, and some of the other deals that priced in the late February-early March time frame, the buy-side is expected to hit the reset button with respect to concessions issuers must make to their existing bonds in order to get new bonds priced.

"For a good credit a deal can get done, but it's just going to come at extremely wide levels to where the existing bonds are trading," a banker said on Thursday morning.

The tightest new issue concessions of 2009 to date have been between 35 bps and 40 bps, the banker added.

"The last few deals that came were between 150 basis points and 300 basis points of discount to existing bonds."

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