Timing emerges on Global Auto Logistiques euro deal; holiday stills secondary

By Paul Deckelman and Paul A. Harris

New York, Nov. 12 - With most debt-side financial market activity in the U.S. on hold Monday for the Veterans' Day holiday, primary players heard that Global Auto Logistiques SA is likely to launch a €100 million offering next week. With the Treasury market closed and most corporate bond desks unstaffed, secondary trading was meanwhile at a virtual standstill.

What few trades did take place were isolated odd-lot affairs; very thin upside dealings were heard in such issues as AES Corp. and Primedia Inc., while Sequa Corp. 9% notes were heard on the downside.

But the very few players who were even in said the interesting activity would take place when things got back to normal Tuesday and market participants digested everything that had happened since quitting time on Friday.

For one thing, the late-Friday announcement by Enron Corp. and Dynegy Inc. that the two Houston-based energy marketers would merge - on Dynegy's terms - appears to stop Enron's slide toward junkdom, which accelerated last week when Moody's Investors Service dropped the ratings on its senior unsecured debt to just a notch above junk, at Baa3 and warned of possible future downgrades. Enron's bonds, once solid investment-grade credits which traded on a spread basis like any other high-grade bond, have recently traded at a steep discount to par and quoted in dollar terms, on the expectation that it might soon become a fallen-angel junker.

Now, it looks as though that won't happen, since the ailing Enron is to be taken over by the more financially secure Dynegy (although Moody's said Monday that it would put Dynegy's ratings, including its current Baa2 senior unsecured rating, under possible review for a downgrade, citing the merger news; Standard & Poor's meanwhile, continues to rate Enron at BBB and Dynegy at BBB+).

On Friday, Enron's debt had finished in the mid-to-high 80s, given a boost by Moody's smaller-than-feared ratings cut and the impending Dynegy merger (the deal was announced after the market close). Junk denizens who had been anticipating playing in Enron if it cheapened up further and crossed over into the high yield arena are now expected to turn their attention elsewhere.

Another issue - a former high-grade name now trading among the junkers - which could see some activity when the market resumes trading Tuesday is AMR Corp., parent of American Airlines.

The nation's largest air carrier, still reeling from the Sept. 11 terrorist attacks (which saw two American planes seized by hijackers and destroyed with all aboard) suffered a stunning tragedy Monday when a flight bound for the Dominican Republic crashed moments after takeoff from Kennedy Airport, killing all 255 passengers and crew on board, with possible additional deaths and numerous injuries to people on the ground. A number of homes in the residential neighborhood where it crashed were destroyed or damaged.

The natural inclination was to suspect terrorist activity; now, officials seem to be leaning toward mechanical failure as an explanation. Even though American was insured, the disaster represents a fresh setback to the company's reputation, if not its finances, with questions about its maintenance operations likely to be raised as the tragedy is investigated.

With nobody around, there was no activity seen Monday in the bonds of AMR or other airlines, many of which fell into junk status after Sept. 11. AMR's shares meanwhile plunged $1.64, or more than 9%, to $16.49, amid a general slide in airline, hotel and other tourism-linked stocks, still not fully recovered from the September attack.

The only noteworthy development on Monday's primary market involved Global Auto Logistiques €100 million issuance: a syndicate source told Prospect News that it would launch Nov. 21, and likely price within 10 days of hitting the road.

One investment banker said he expected the run-up to Thanksgiving to be reasonably busy, given the reportedly cash-heavy positions of many of the funds.

"There seems to be enough cash in the market, so I wouldn't be surprised it we saw some stuff like we saw last week, some drive-bys and a few add-ons," this source said.

"People are buying what they know, and what they can get their arms around, as opposed to buying leveraged stuff in areas where they are not as comfortable," the source added.

One deal figures to price Tuesday: Chesapeake Corp.'s £90 million of 10-year notes (B2/B+) via Credit Suisse First Boston. Price talk in the 10½% area emerged Friday.

End

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