GMAC lower as sale chances seen receding; Quebecor prices upsized 10-year deal

By Paul Deckelman and Paul A. Harris

New York, March 1 - Bonds of General Motors Acceptance Corp. were seen lower Wednesday following reported comments by the CEO of parent General Motors Corp. that gave the impression that sale of a controlling stake in the financial unit was no longer such an urgent GM priority.

Also out of the automotive sector came word late in the session that troubled Dana Corp.'s bonds were now trading flat, or without their accrued interest, after the Toledo, Ohio-based automotive components maker failed to make the scheduled March 1 interest payment on two series of bonds, instead invoking the 30-day grace period.

In the primary market, meanwhile, a multiple-times oversubscribed deal from Montreal-based commercial printer Quebecor World Inc. was massively upsized and priced in the middle of talk - and then firmed nicely in aftermarket trading.

Meantime, price talk emerged on two other upcoming deals, for Bon-Ton Stores Inc., and for Dave & Buster's Inc.

A senior high-yield syndicate official said that the broad market was unchanged trailing Wednesday's "quiet" session, and added that rumors of a pending IPO from Neiman Marcus are expected to help that company's bonds.

Quebecor strongly oversubscribed

On Tuesday a buy-side source tipped Prospect News that the Quebecor deal figured to be a blowout.

That source's information turned out to be on the money as the Canadian printer priced an upsized $450 million issue of 10-year senior notes (Ba3/BB-) at par to yield 8¾% on Wednesday.

The yield came on top of the 8¾% area price talk.

Citigroup ran the books for the debt refinancing and general corporate purposes issue that was upsized from $300 million.

An informed source said that the deal was multiple-times oversubscribed, and added that in trading the paper went out the door at 101.125 bid.

A quiet start to March

Aside from the Quebecor deal the market produced very little news on Wednesday.

Price talk came out on the deals that remain to be done before Friday's close.

Bon-Ton Stores Inc. talked its $525 million offering of eight-year senior notes (B2/B-/CCC+) at a yield in the 10% area. The Banc of America Securities and Citigroup-led deal is expected to price Thursday afternoon.

Meanwhile Dave & Busters Inc. talked its $175 million offering of eight-year senior unsecured notes (B3/CCC+) at 11% area. Pricing of the JP Morgan led deal is expected on Friday.

When Prospect News quizzed sell-side sources about the expectations for a building forward calendar, the responses tended to be tempered ones on Wednesday.

One sell-sider said that volume figures to be "muted," and added that "people are expecting a moderate bump to the calendar, which is probably correct."

Another sell-sider said that once companies begin to certify their financials under Sarbanes-Oxley requirements, which figures to begin happening in mid-to-late March, there will be a pick-up in offerings.

Elsewhere a market source said that a deal out of Lehman Brothers and Banc of America Securities will likely be announced on Thursday. However the source declined to furnish a name.

Quebecor up in trading

When the new Quebecor World 8¾% senior notes due 2016 were freed for secondary dealings, traders saw the new bonds pushing up to levels around 101 bid, 101.5 offered from their par issue price earlier in the session.

GM, GMAC lower

Back among the established issues, traders saw GMAC bonds, and GM's, gyrating around at mostly lower levels, before closing lower on the session.

"GM and GMAC were down this [Wednesday] morning" one said, "then they traded back up," at least for a while, before "they finally closed at their lows for the day."

He saw GMAC's 8% notes due 2031 as having gone home on Tuesday at 92 bid, 93 offered, then having opened Wednesday at 91 bid, 92 offered, and having finished Wednesday at 90 bid, 91 offered.

He also saw the financing unit's 6¾% notes due 2014 dropping to 87.75 bid, 88.75 offered from 88.5 bid, 89.5 offered on Tuesday, while its 6 7/8% notes due 2011 lost half a point to 89 bid, 90 offered. He meantime saw GM's benchmark 8 3/8% notes due 2033 at 70 bid, 71 offered, down from 71 bid, 72 offered.

A market source at another desk saw GMAC's 6 7/8% notes due 2012 down a point at 88.75 bid, but saw GM's 7 1/8% notes due 2013 unchanged around the 72.5 mark.

At yet another shop, a trader saw the GMAC 8s fall 1¼ points to 90.5 bid, 91.5 offered, while the parent GM bonds were "pretty much unchanged" around 70.25 bid, 70.75 offered.

Still another trader reported the GM 8s down a point at 90 bid, 91 offered, and the GM 8 3/8s minus half a point at 70 bid, 71 offered.

There was a lot of news out on the two companies, almost all of it negative.

For openers, GM chief executive officer G. Richard "Rick" Wagoner, appearing at the International Motor Show in Geneva was reported to have made comments at the Geneva auto show, suggesting the company may not be in that much of a rush to sell a 51% stake in the finance unit. He declined to go into details on the status of negotiations to sell that controlling stake, saying he did not want to speculate on the outcome, saying only that "we continue to explore several options with regard to GMAC." He added that GM has "very strong, massive" liquidity, with a cash position of around $19 billion, and doesn't need to sell that GMAC stake - which analysts think could bring in between $10 billion and $15 billion - before next year.

Those comments were, in turn, echoed and amplified by a prominent auto-sector equity analyst, as Goldman Sachs' Robert Barry said in a research note that those comments in Geneva that GM "is in no rush to sell GMAC, and that a sale is not necessary before next year, suggest the sale process has stalled." He said that this was "consistent with growing press speculation that potential buyers are scarce," particularly since banking giant Wachovia Corp. was rumored late last month to have pulled out of consideration as a possible co-purchaser, along with Kohlberg Kravis Roberts, for that 51% stake.

Barry accordingly further noted that a bank "also seems absent from lists of possible buyers, which makes an investment-grade rating [that is GM's goal for GMAC with the sale] harder to achieve and lessens the need for a sale."

On top of those sobering developments, which seem to indicate that the sale process for control of GMAC, under way since October, is no further along than it was a week, a month or even four months ago, GM reported weaker-than-expected February sales figures.

GM reported overall U.S. new-vehicle sales of 301,545 cars, SUVs and light trucks, down 2.5% from a year ago. Wall Street was expecting a rise of about 1.3%, according to the average of analysts' estimates.

GM's overall car sales were down 13%, although its truck sales - considered vital for its bid to regain profitability - rose 5% from a year earlier, including sharp sales gains for the new Chevrolet Tahoe model. While retail sales of vehicles to individual customers through showrooms was up 1% year-over-year, fleet sales, to car rental companies, taxicab operators, government agencies and other bulk buyers, tumbled 11%. Its share of the U.S. vehicle market declined to down to 23.6% from 24.4% a year earlier.

On top of that bearish data, the Fitch ratings service chimed in with a downgrade, lowering its rating on the company's senior debt to B from B+ previously and warning that should GM ever go into bankruptcy bondholders would likely realize about a 41% recovery, based on its estimates of some $82 billion of unsecured claims versus likely recovery of about $35 billion.

Fitch said that it is doing recovery estimates on all companies that it rates at B+ or lower. It said that with GM expected to continue to wallow in red ink - it lost $8.6 billion last year - and to possibly suffer from constrained liquidity, there is an increased risk that its component suppliers, many of whom have their own financial problems, could at some point begin to restrict trade credit to the giant automaker, although the ratings agency acknowledged that it had seen no signs yet of any trade creditors pulling back the welcome mat. However, it cautioned that such a "run on the bank" from collapsing trade credit is one scenario that could possibly push GM into bankruptcy.

A GM spokesperson dismissed the Fitch projections as a "hypothetical" scenario.

Ford steady amid lower sales

Elsewhere in the automotive realm, GM rival Ford Motor Co.'s overall U.S. sales fell by 3% in February from year-ago levels. Car sales fell 1.4% while truck sales slipped 5.4%. Its share of the U.S. vehicle market declined to 19.3% from 20.2% in February 2005.

However, a trader saw Ford's flagship 7.45% notes due 2031 unchanged at 71.25 bid, 71.75 offered, while its Ford Motor Credit Co. financing arm's 7% notes due 2013 were half a point lower at 87.5 bid, 88 offered.

Dana up, then trades flat

Among the suppliers, Dana "was all over the map today [Wednesday], the trader said, pegging the company's 6½% notes due 2008 at 65.5 bid, 66.5 offered, up 1½ points on the session, while its 5.85% notes due 2015 were two points better at 62.75 bid, 63.75 offered, and its 7% notes due 2029 were at 64 bid, 65 offered, up from 61.5 bid, 62.5 offered on Tuesday.

At another desk, traders were also quoting the bonds at those higher levels - but they said that the bonds were trading flat, or without their accrued interest, on late-day news headlines - later confirmed by a company statement - to the effect that Dana had not made the scheduled March 1 coupon interest payment on its 6½% notes due 2009 and its 7% 2029 notes. About $21 million in interest payments was due. Dana noted that it has a 30-day grace period in which to make the interest payments.

It noted in its statement that a failure to make the interest payments by March 31 would constitute an event of default under the notes' indentures that would permit the indenture trustee or holders of 25% or more of the notes to accelerate their maturity by demanding immediate payment. That, in turn, would result in a cross-acceleration of the company's other debt.

After the company announcement about the non-payment of the interest, a trader saw the two issues of 6½% notes - the '08s and the '09s - each trading flat at the same 64 bid, 65 offered, even though "one has three points of accrued interest, and the other has none." Likewise, he saw both issues of the 7% notes - the '28s and the '29s - trading flat at 63 bid, 65 offered, despite the fact that one has accrued interest and the other doesn't. Its 5.85 bonds were at 62 bid, 64 offered and trading flat.

Delphi rises

Among the other suppliers, Delphi Corp.'s 6.55% notes due 2006 were a point better at 55.25 bid, 56.25 offered, while its 7 1/8% notes due 2029 were likewise a point better, at 56 bid, 57 offered.

In his comments in Geneva, GM's Wagoner also said that "intensive" talks regarding GM's liabilities for pensions at Delphi, which was formerly part of GM, were continuing, although nothing has been resolved yet. Besides GM and its bankrupt, Troy, Mich. -based former subsidiary, those talks also involve the United Auto Workers union, which represents most of Delphi's roughly 34,000 unionized hourly workers.

They are trying to reach an agreement on cutting Delphi's bloated labor costs before a March 31 deadline self-imposed by Delphi, which has threatened to ask the judge overseeing its reorganization to void its union contracts by that date if no agreement with GM and the UAW has been reached by then. Such a move could provoke a costly strike by the Delphi workers - although the company might also extend the deadline again, which it has already done several times.

Xerox firm on S&P upgrade

Apart from the automotive sector, a trader saw Xerox Corp.'s 7 5/8% notes due 2013 half a point better, 106 bid, 107 offered, after Standard & Poor's upped the Stamford, Conn.-based copier and imaging products giant's corporate credit, senior unsecured and senior secured ratings two notches to BB + from BB- previously, with a stable outlook. S&P cited the company's recent debt reductions, its improved cash flow and growth in equipment sales.

At another desk, however, while a trader lauded the ratings rise - "two notches, good for them" - he saw its bonds little changed, with the 7 1/8% notes due 2010 at 103.5 bid, 104 offered and its 7.20% notes due 2016 at 106 bid, 107 offered.

Likewise unchanged, a trader said, were the 2008 and 2011 bonds of Saks Inc., even though the Birmingham, Ala.-based department store retailer reported a fourth-quarter loss of $2.2 million (two cents per share) versus a prior-year profit of $96.6 million (68 cents per share), and said it would pay its shareholders a special $4 per share cash dividend from the proceeds from the sale of some of its units. The trader saw the '08s at 104 bid, 105 offered and the 11s at 109 bid, 111 offered.

Another trader, however, saw Saks' 7½% notes due 2010 at 98.25 bid, 99.25 offered, down 1¾ points from Tuesday's high print.

James River Coal Co.'s 9 3/8% notes due 2012 were up ¼ point at 104.5 bid, 105.5 offered, after the Richmond, Va.-based coal producer announced plans to explore strategic alternatives, including the possible sale of the company (see related story elsewhere in this issue).

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