Delphi bonds bounce as company explains credit draw; talk out on Dollarama offering

By Paul Deckelman and Paul A. Harris

New York, Aug. 8 - Delphi Corp.'s bonds - which skidded sharply lower Friday after the company announced that it was in restructuring talks with its unions and former parent General Motors, might declare bankruptcy if those talks prove fruitless, and had dipped deeply into its credit availability - were seen rebounding Monday, trader said. They attributed the bounce to the release of not-as-bad-as-feared second quarter numbers, as well as efforts by company executives during the accompanying conference call to reassure the investment community about the credit facility drawdown.

In the primary market, no new issues were heard to have priced during the session; however price talk emerged on Dollarama Group's planned seven-year note offering - which could price as early as Tuesday - and more details emerged on Columbus McKinnon Corp.'s planned issue of eight-year notes, which is scheduled to hit the road around mid-week.

Back among the existing issues, "the excitement was pretty much domiciled in Delphi, I guess," a trader said, alliteratively. "People were waiting for that."

After Delphi reported its numbers, "that certainly gave a little better tone to the bonds, after the conference call," he said.

The troubled Troy, Mich.-based automotive electronics manufacturer's bonds had "gotten murdered" on Friday after release of the news about the restructuring talks, the possible bankruptcy scenario, the $1.5 billion credit facility drawdown, and the swift condemnation of that move by all of the major credit rating agencies.

Delphi's benchmark issue, its 6.55% notes due 2006, had dropped about 10 to 12 points on that session, ending somewhere in the mid-80s. The trader attributed the carnage to "anticipation of much-worse-than-expected quarterly results," as well as investor angst about the reasons for the revolver drawdown.

However, on Monday, "the conference call said they hadn't spent any of that money, and basically, they took it for strategic reasons - and that they had about $3 billion of liquidity" (see related story elsewhere in this issue).

All of that, he said, calmed investor jitters, and "the market got a bit more comfortable" about Delphi, taking the 6.55s back up to 91 bid, 92 offered late in the day from their opening levels at 86.5 bid, 87.5 offered, "a decent rebound," the trader said - although he noted that the bonds remained "still six or seven points down from where they were on Thursday."

He saw the 6½% notes due 2013 finishing at 77 bid, 78 offered, well up from the levels around 73 bid, 74 offered to which those bonds had fallen Friday.

Another trader saw Delphi's 6.55s get up to 89.5 bid, 90.25 offered, versus an opening level at 87.25 bid, 88.25 offered.

Yet a third trader saw the 6.55s gain three points on the session to end at 89 bid, 91 offered. He saw the 61/2s two points better at 75 bid, 77 offered and saw the company's 7 1/8% notes due 2009 four points better on the day at 72 bid, 74 offered.

A market source saw Delphi as a "mixed bag," with its 6½% 2013s up 1½ points at 75.5 bid, although Delphi's 61/2s due 2009 were down 1½ points at 80.5.

Other auto names weak

Outside of Delphi, a trader saw the whole auto parts sector was "very sloppy" at the beginning of the day, in sympathy with Friday's fall in Delphi. Although things improved later on, "net-net, the sector, with the exception of Delphi, was down half a point to a point."

He saw Tenneco Automotive's 8 5/8% notes due 2014 having opened at 102 bid, 102.5 offered, down from Friday's 103.5 bid, 104.5 offered, although by the end of the day, those bonds had come off their lows to end at 102.5 bid, 103.5 offered.

He saw Dura Operating Corp.'s 9% notes due 2009 open at 79 bid, 80 offered, down two points from Friday's closing levels, but then get most of those losses back, closing at 80.5 bid, 81.5 offered.

ArvinMeritor Corp.'s 8¾% notes due 2012 lost two points from Friday's levels when they opened at 101.5 bid, 102.5 offered, but "rebounded and came back today" to end at 103 bid, 104 offered.

The trader saw Visteon Corp. "also out with their numbers," but said that there had been "no real movement in that one."

The Van Buren Township, Mich.-based auto components supplier was out with quarterly numbers, and in apparent response the company's 8¼% notes due 2010 - which were quoted as low during morning dealings as 94.5 bid, 95.5 offered - came back to finish at 95.25 bid, 96.25 offered, essentially unchanged on the day."

Saks sees takeover talk

Apart from the autos, there was some news being generated about Saks Inc., which has recently been the subject of takeover speculation. Monday's edition of Women's Wear Daily, a fashion-industry trade publication, speculated that Bon-Ton Stores Inc. might team up with Cerberus Capital to make a bid for Birmingham, Ala.-based department store operator Saks somewhere in the $28 to $30 per share range.

While a trader saw Saks' 8¼% notes due 2008 easing a point to 103.25 bid, 104.25 offered, at another desk, a market source saw those bonds at 103.5 bid - up nearly a point ion the session.

Saks' New York Stock Exchange-traded shares jumped $1.85 (9.14%) on Monday to $22.10. Volume of some 6.2 million shares was more than four times the usual

Maytag up

Maytag Corp.'s 5% notes due 2015 were seen trading up to 92.5 bid, 93.5 offered from prior levels around 90 bid, 91 offered, after Whirlpool Corp. Increased its cash-and-stock takeover offer for the rival Newton, Iowa- based appliance maker to $20 from $18 previously, apparently topping an earlier $14 per share offer from an investor syndicate led by Ripplewood Holdings. Shareholders will vote on Ripplewood's proposal at a special shareholder meeting later this month.

Weaker overall

Generally the market was seen weaker.

"Pick your poison," advised one source who said that the high-yield market traded lower by one-eighth- to one-quarter of a point as the second week of August got underway.

The stock market drifted down on Monday. The 10-year Treasury sold off, pushing its yield higher. And the price of a barrel of crude oil spiked above $63, the source added.

Another sell-sider, more or less confirming that market tone, told Prospect News that existing issues of Triton PCS, Movie Gallery Inc. and Blockbuster Inc. had traded in copious amounts in a session that otherwise saw very low volume.

Monday in the doldrums

The new issue market produced practically no news whatsoever on Monday, sources said.

Dollarama Group, the Canadian dollar store chain operator, talked its $200 million offering of seven-year notes (B3/B-) at 8¾% to 9%. Pricing is expected on Tuesday via Citigroup, JP Morgan and RBC Capital Markets.

And crane and hoist company Columbus McKinnon Corp. revealed structural details on its $136 million offering of senior subordinated notes: the bond will be eight-year non-call-four.

Last Friday Karen L. Howard, vice president and interim chief financial officer of Columbus McKinnon, told Prospect News on Friday that the company had been contemplating a tenor of seven, eight or 10 years.

Credit Suisse First Boston has the books for the deal which hits the road on Wednesday.

Citi sees "ill-defined" technicals, "solid" fundamentals

In the most recent issue of Citigroup's weekly Bond Market Roundup, that institution's high yield strategist John Fenn, along with his colleagues, assert that there is positive news both fundamental and technical for those who look closely enough.

"The technicals continued to offer no real definition to the market, although it is no surprise to anyone that demand is good out there for the right deals," Fenn and company write.

"Mutual fund flows remain highly indifferent as AMG Data reported that high-yield mutual funds saw anemic outflows of $2.9 million for the week (sadly, that is not the smallest weekly flow number observed in the last 12 months)," they added.

"However, unexpectedly, monthly reporters came through with a solid inflow of more than $580 million for July and pushed the month into positive territory - the first positive monthly flow of the year. Given the weakness in retail flows of late, the small net inflow must have seemed like a torrent of money."

However they paint this liquidity picture against a backdrop in which there are apparently not enough high-yield bonds for sale.

"Overall, the market has been supported by solid fundamentals and a very favorable technical environment," Fenn and associates write. "It appears that there is an abundance of cash in the market - certainly cash that is willing to chase new issues, which is something that we had expected even in the darkest days of the spring.

"While the market seems poised to buy new issue, July failed to supply enough of it. The market saw $8.8 billion come to market during the month and was dominated by $4.0 billion of SunGard Data Systems and L-3 Communications on one day. Away from that, the European market was active and provided surprising volume."

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