Visteon bonds firm as Ford deal becomes official; Calpine climbs on faster debt reduction

By Paul Deckelman and Paul A. Harris

New York, May 25- Visteon Corp.'s bonds - which have been firming over the last several sessions on market expectations that the Van Buren Township, Mich.-based automotive components maker would reach a restructuring agreement with former corporate parent Ford Motor Co. that would put it on a more solid footing - pushed still higher Wednesday as those expectations became reality, and Visteon and Ford announced an accord.

Even though Visteon thus unloads the burden of a number of unprofitable plants onto its ex-parent and Ford also comes through with more aid for its struggling offspring, no negative impact was seen on Ford's bonds.

Elsewhere, Calpine Corp. debt firmed smartly after the San Jose, Calif.-based power generating company announced plans to speed up its previously announced effort of cutting $3 billion of debt by the end of 2006, pushing the timetable up to the end of this year.

Junk rallied across the board during the mid-week session, according to a buy-side source who spoke on background late Wednesday.

The investor added that the market derived solace from the news that auto parts-maker Visteon Corp. plans to dramatically reduce expenses by transferring plants and workers back to its former parent Ford Motor Co.

"That's as close to an intervention from God as I have seen in a long time," the investor commented.

Meanwhile in the primary market, although investors are said to remain on the defensive, two developments seemed to indicate that while the market is by no means hot it is by no means closed either.

KB Home drove through Wednesday with a four-B rated offering of 10-year notes that it priced on top of price talk.

And Ventas Realty doubled the size of its four-B rated deal to $300 million, with terms expected on Thursday.

Good news or bad?

"It was a well-bid day," said another buy-side source, also speaking on background Wednesday.

The investor noted that the 10-year Treasury, which early in the session was flirting with the 4.00% threshold, traded off later.

"Oil is up almost $2.00," the buy-sider added. "High yield seems to be well traded.

"The good news is that oil and commodities are up. The bad news is that the Fed is still raising.

"What you have to ask yourself is 'Does that mean that the economy is strong?' or 'Does it mean that the economy is going to slow down?'"

Fund flow rumor mill

This buy-sider also said that there is a rumor circulating - "And this is really a rumor!" - that the high-yield mutual funds, which have now seen a record "relentless" run of 14 consecutive outflows, might see a turning of the tide when AMG Data Services makes its report on weekly funds flows Thursday afternoon.

"It's not really based on anything solid, but that's what I've been hearing," the source added.

KB Home: "Things have changed"

The Wednesday session in the primary market saw the week's second quick-to-market transaction completed as Los Angeles-based homebuilder KB Home drove through with $300 million.

The company priced its 6¼% 10-year senior notes (Ba1/BB+) at 99.051 to yield 6.379%, a spread to Treasuries of 230 basis points, right on top of the price talk.

UBS Investment Bank was the bookrunner for the debt refinancing transaction.

Although the KB Home deal was a drive-by and it priced on top of the price talk, on sell-side official remarked that early last December the Los Angeles company had priced a $300 million issue of 5 7/8% senior notes due 2015 (Ba1/BB+) at 98.134 to yield 6 1/8%.

"That one got done at a spread of 190," the official said, noting that the spread on the new note is 230 basis points.

"When you factor in a move in the Treasury of about 20 basis points you can see that things have changed."

When the new KB Homes 6 ¼% notes due 2015 were freed for secondary dealings, they were seen having retreated slightly to 98.625 bid, 99 offered, off from their issue price earlier in the session at 99.051.

The week's other quick-to-market transaction came from Teco Energy which priced a $200 million issue of 10-year senior unsecured notes (Ba2/BB/BB+) at par on Monday to yield 6¾%, tight to the 6 7/8% area price talk.

Ventas doubles size

Elsewhere Wednesday the four-B rated Ventas Realty transaction doubled in size to $300 million from $150 million, with pricing expected on Thursday.

The Louisville, Ky.-based healthcare real estate investment trust is offering $150 million of 10-year senior notes, non-callable for five years (Ba3/BB), which it is talking at a yield in the 7¾% area. JP Morgan and Merrill Lynch & Co. are joint bookrunners. Banc of America Securities, UBS Investment Bank and Citigroup are co-managers, with other co-managers expected to emerge.

On Wednesday Ventas Realty added $150 million of seven-year bullets, talked in the 6 7/8% area. JP Morgan, Merrill Lynch & Co. and Banc of America Securities are joint bookrunners for the five-year bullet.

A buy-side source told Prospect News that the deal is going very well.

Visteon jumps on Ford deal

Back among the established issues, Visteon was clearly one of the major movers of the day, a trader said, seeing its 8¼% notes due 2010 pushing up to 89 bid, 90 offered from prior levels at 85 bid, 86 offered, while its 7.95% notes scheduled to come due on Aug. 1 - which last week traded around 95, and which finished Tuesday at 98.75 bid, improved to 99.75 bid, 100.5 offered.

Another trader saw the 81/4s at 90 bid, 91 offered, up five points on the session, and pegged its 7% notes due 2014 also up about four or five points at 81.5 bid, 82.5 offered. The trader saw the 7.95s up "a point and change" to par bid, 100.5 offered.

Visteon's New York Stock Exchange-traded shares closed up 90 cents (14.35%) to $7.17 on volume of 18.9 million shares, more than seven times the daily average turnover.

As part of the memorandum of understanding announced Wednesday by Visteon and Ford, the carmaking giant will front its former subsidiary $250 million in the form of a secured loan that Visteon will use to redeem the $252 million of outstanding 7.95% notes.

On a conference call Wednesday, Visteon executives hailed the new agreement, which they said will produce a gain of between $450 million and $650 million for Visteon, depending on the final terms.

Ford agreed to temporarily take over 20 currently unprofitable Visteon U.S. plants and four more in Mexico, for which it will try to find a buyer or buyers. The deal calls for the termination of the current leasing arrangements for approximately 17,400 Ford-UAW employees working at those plants; Visteon was paying Ford for the use of its workers, who are considerably better paid than Visteon's own employees.

Ford is also granting Visteon relief of its remaining liability, including about $1.5 billion of previously deferred gains, related to the Ford-UAW post-retirement health care and life insurance benefit obligations for former assigned employees and retirees and certain salaried retirees. That liability Visteon is shedding comes to about $2 billion.

Ford will also reimburse up to $550 million of further restructuring costs by Visteon.

The $250 million secured loan to take out the 7.95% bonds will be provided upon the signing of a definitive agreement between the two companies, while Visteon will repay the loan when the transaction is closed, which is expected at the end of the third quarter. Visteon will also issue to Ford warrants to purchase 25 million shares of Visteon stock at an exercise price of $6.90 per share.

During the conference call, Visteon's chief executive officer, Mike Johnston, said that by getting out from under the unproductive, high-labor cost plants and getting the secured loan and the other restructuring aid from Ford, his company would have improved liquidity, although he added "there's still much to do."

Chief among these tasks is getting the company's senior credit facility lenders to amend its facilities and to finalize a refinancing of its 364-day revolving credit facility, which is scheduled to expire next month. That, said chief financial officer Jim Palmer on the call "is a top priority for us."

The CFO also said that the company's lenders had extended the deadline by which it must file its first quarter results to the end of July.

"Liquidity is the key," said Palmer. As of the end of March, he added, Visteon had $809 million of cash on hand.

Ford bonds firm

Even though Visteon now transfers the unprofitable plants to Ford, which will own them at least temporarily till they are sold, and Ford is giving its former unit the secured loan and the other restructuring assistance, there was little impact on Ford's bonds, which in fact were seen actually up on the day, perhaps on investor relief that Ford had saved Visteon from dire fates up to and including possible bankruptcy, thus assuring itself of continued supply of Visteon's components. Visteon is Ford's single biggest supplier, and Ford currently accounts for two-thirds of Visteon's sales, a percentage which will shrink to about 50% once the plants are handed over.

A trader saw Ford's benchmark bonds, the 7.45% notes due 2031, half a point better at 79.5 bid, 80.5 offered.

At another desk, a source said that the Ford bonds "seemed to be holding steady. There was no big movement" of anything.

He saw the 7.45s if anything higher by about a point at 79.75 bid, while Ford's 7.4% notes due 2046 were anchored at 76 bid, 77 offered. At the shorter end of the capital structure, he saw Ford's 8 7/8% notes due 2022 go from 92.375 bid to 93.5. Its 9.98% notes firmed to 88.625 bid from 87.875.

Ford Motor Credit, the profitable financing arm of Ford, was also up, its 7¼% notes due 2011 half a point better at 90.75.

GM better

Elsewhere among the junk auto names, General Motors Corp.'s flagship 8 3/8% notes due 2033 improved to 73.125 bid from 72.25, while its 8.8% notes due 2021 were slightly higher at 76.75.

The source said that "it seemed like there wasn't much reaction" to Tuesday's decision by the Fitch Ratings service to follow the lead of Standard & Poor's and drop the world's largest automker's bonds down to junk status. "It was pretty much expected."

Other auto names higher

Among other automotive names, TRW Automotive's 9 3/8% notes due 2013 were seen up better than a point to 107.25. ArvinMeritor's 8¾% notes due 2012 were a point better at 97.5 bid, 98.5 offered, while Dura Operating Corp.'s 8 5/8% notes were also up a point, at 89.5 bid, 90.5 offered.

Calpine jumps on debt cut plans

Besides Visteon, Calpine was the major mover of the day Wednesday, after it announced plans to increase its debt reduction pace, and to institute operational belt-tightening and "optimize" its assets by looking to sell plants and gas reserves.

Capine moved up its timetable for getting rid of $3 billion of its $18.1 billion debt to the end of this year, and its executives told participants at the company's annual meeting that there would be "aggressive" further debt reduction planned for 2006 and 2007 (see related story elsewhere in this issue).

That helped to boost Calpine's bonds, with a trader seeing its 8½% notes due 2008 - which had finished Tuesday at 50.5 bid, 51.5 offered - as having opened at 52 bid, 53 offered, then having gotten as good as 55.5 bid, 56.5 offered, before falling back slightly from those highs to 54 bid, 55 offered. However, the bonds put on a burst of strength late in the day that took them back up to 56.5 bid, 58.5 offered.

The trader also saw the company's 8¼% notes slated to come due later this year at 96.5 bid, 97.5 offered.

Another trader, who saw the 8½% 2008s finish at 55.5 bid, 56.5 offered, up four points on the day, the 81/4s up 1½ points at 96 bid, 97 offered, and its 8½% notes due 2011 four points up at 54.5 bid, 55.5 offered, observed that the bonds were "very strong, with the stock up 33% and a combination of people buying and short-covering."

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