Dana dives as bankruptcy rumors swirl; Station Casinos prices 12-years; funds see $31 million outflows

By Paul Deckelman and Paul A. Harris

New York, Feb. 23- Dana Corp.'s bonds skidded wildly downward Thursday along with the Toledo, Ohio-based automotive components maker's shares as the debt and equity markets buzzed with talk - all of it as yet unconfirmed - that the company was having trouble lining up some new financing, or that it might even be headed for a bankruptcy filing.

In the primary market, Station Casinos Inc. had the hot hand as the Las Vegas-based gaming operator shopped a quickly appearing offering of 12-year notes, which then firmed when it was freed for secondary dealings.

A buy-side source said that the high-yield market was quiet overall, with the high-quality end of the market reported to be off an eighth of a point.

Price talk meantime emerged on CNH Global NV's upcoming issue of eight-year notes, which could price on Friday. And Serena Software Inc.'s planned offering of 10-year notes, which will help fund a buyout of the company, was seen joining the forward calendar, with a roadshow slated to start on Monday.

And after market players had pretty much called it a day, participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $31.3 million more left the funds than came into them.

It was the third straight week that the funds have been bleeding money, following outflows of $116.3 million seen last week (ended Wednesday Feb. 15) and $40.3 million the week before that. In those three weeks, outflows have totaled $187.9 million, according to a Prospect News analysis of the AMG figures.

Outflows have now been seen in six weeks out of the eight since the start of the year, with net outflows totaling $557.6 million in that time, up from the previous week's $526.3 total, according to the Prospect News analysis.

The latest outflow also reinforced the decidedly negative pattern seen in nine of the last 11 weeks, dating back to mid-December. In that time, net outflows have totaled around $1.407 billion, the analysis indicated.

Those results, in turn, confirm the continuation of the predominantly negative trend that was in evidence throughout most of 2005, when $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the $3.236 billion net outflow seen in 2004.

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 only comprise between 10% and

15 % of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Station Casinos on top of the talk

Meanwhile the primary market produced incrementally more news than had been seen in either of the preceding two sessions of the holiday-shortened Feb. 20 week as Station Casinos, Inc. priced a $300 million drive-by on top of price talk.

As with Wednesday, Thursday's sole transaction - that from Station - was a drive-by deal.

The gaming and entertainment company priced a $300 million issue of 6 5/8% 12-year senior subordinated notes (existing Ba3/confirmed B+) at 99.50 to yield 6.686%.

Banc of America Securities, Deutsche Bank and Wachovia Securities were joint bookrunners for the debt refinancing deal.

An informed source simply commented that the deal had gone very well.

Station Casino's new 6 5/8% notes due 2018 came on top of the Treasuries plus 212.5 basis points price talk.

Observers may recall that Wednesday's upsized $300 million issue from Hovnanian Enterprises, Inc. was also talked at a spread to Treasuries. In that case an informed source had told Prospect News that the deal was talked at a spread because 40% of the names in the books were investment-grade accounts.

Serena ready for the road

Spyglass Merger Corp., which will be merged with Serena Software Inc., will begin a roadshow on Monday for its $255 million offering of 10-year senior subordinated notes (Caa1/CCC+).

Merrill Lynch, Lehman Brothers and UBS Investment Bank are joint bookrunners for the LBO deal which also involves a $450 million senior secured credit facility.

Talk on CNH

News in the form of price talk was also heard on the only deal left on the forward calendar as business that is expected to clear the new issue market by Friday's close.

CNH Global NV (Case New Holland) talked its $350 million offering of eight-year senior notes at 7% to 7¼%.

UBS Investment Bank has the books for the Ba3/BB- rated debt refinancing deal.

Station up in trading

When the news Station Casino 6 5/8% notes due 2018 were freed for secondary dealings, they were seen having moved up to par bid, 100.5 offered from their 99.5 issue price earlier in the session.

And the new Hovnanian Enterprises Inc. 7½% senior notes due 2016 were seen by a trader as having firmed to 100.5 bid, 101.5 offered from their par issue price on Wednesday. At another desk, a trader had the bonds at 100.375 bid, 100.75 offered.

Dana plunges

But it was the established issues that were the main focus of market participants, particularly Dana, which was easily the flaming car wreck of the day.

Some of the company's shorter-term bonds were seen down about six points in mid-morning trading; by the close those losses had ballooned even further.

A trader pegged the company's 6½% notes due 2008 as having traded around 85 bid, 87 offered in the morning, and then having nosedived as low as 68 bid, before coming back a little from those depths to still end way down at 72 bid, 74 offered. He saw its 61/2s due 2009 falling to 70 bid, 72 offered from prior levels at 79 bid, 81 offered. The carnage was a little less pronounced among the longer-dated issues, with the 5.85% notes due 2015, the 7% notes due 2028 and the 7s of 2029 all trading at 64 bid, 65 offered, down from 68 bid, 70 offered.

The bonds fell in tandem with the company's New York Stock Exchange-traded shares, which swooned 74 cents (19.02%) to $3.15. At one point, the stock fell as low as $2.66 - its lowest level since January 1975. Volume of 20.6 million was 8½ times the norm.

It was widely reported that the shares plummeted after the company's announcement earlier in the week that it would delay payment of its quarterly cash dividend, and would make the final decision on the expenditure after it completes its 2005 fourth-quarter and full-year results.

But market observers noted that apart from sending a signal that the company is in trouble, a threat to the dividend - while traumatic for shareholders-would be of little concern to bondholders, who might actually welcome delaying the dividend or even scrapping it all together as a better use of the company's limited resources, rather than enriching the shareholders.

They saw different dynamics at work in the junk bond market. The trader, for instance, cited "a rumor going around, spread by one of the big dealers, that they were supposed to be negotiating a new bank deal, but it was getting held up."

However, he said nobody - including the shop that supposedly was working on the deal - seemed to know anything about it. "So it was all just the rumor mill," he said.

Another trader also noted the rumor that a secured bank deal was in jeopardy, as well as other talk that the company might be headed for a bankruptcy filing soon to join such automotive supplier sector peers as Delphi Corp., Collins & Aikman Corp. and Tower Automotive Inc.

He saw the 6½% 2008 notes at 71.5 bid, 73.5 offered, after having hit lows earlier around 67 bid, 69 offered.

Dana, another trader opined, "got creamed." He said that the shorter bonds were way down "on not much news." He attributed the down turn to talk that "their deal, the new financing, hit a snafu," causing the bonds to fade badly.

"They had hung in there yesterday [Wednesday], but then they opened this morning [Thursday] down 10 [points]. They got mowed."

He saw the 6½% notes due 2009 at 67.5 bid, 68.5 offered, down from prior levels in the high 70s, and the 6½% 2008 notes at 72 bid, 73 offered from prior levels in the 80s after having dropped as low as 70 bid early on. He saw the longer-dated issues, like the '28s and the '29s down several points at 63 bid, 64 offered.

Yet another trader noted that "there was a lot of activity in the credit default swaps [CDS] market, and that had to have been a big influence on the bond, I would think."

In that extremely volatile market - which deals in derivative instruments that essentially act as an insurance policy against the possibility of a company defaulting - the cost of protecting Dana debt against a default for five years was quoted as having jumped to 30% up front, or $3 million per $10 million of bonds protected, plus another 500 basis points, or $500,000 per year. That was well up from prior levels of $2.3 million per $10 million of debt protected, or 23% upfront, plus the $500,000 annually.

Sharp upward swings in the CDS market are seen as a barometer of market bearishness about a company's prospects for staying out of bankruptcy or avoiding another event of default.

The trader saw Dana's 5.85s ending down three points at 63 bid, 64 offered, and said that at one point, he had seen those bonds trading as low as 61 bid, 63 offered. He also offered that "they might have been even lower" at some point. He saw the two 7% long bond issues moving in lockstep with the '15s, while the 6½% notes due 2008 tumbled to 72 bid, 73 offered from 81.5 bid, 82.5 offered.

When told that some traders had seen the latter bond trading as low as the upper 60s before bouncing off those lows to end in the lower 70s, he acknowledged that such a scenario "made sense."

Adding to investor angst about Dana's prospects was the fact that company officials offered no comment or other reassurance to the market at any point during the session.

Dana has been under critical scrutiny by investors ever since it reported on Jan. 17 that it suffered a yawning net loss of $1.27 billion ($8.50 per share) for the three months ended Sept. 30 - a sharp deterioration from its year-earlier profit of $42 million (28 cents per share), despite sales having edged higher in the latest period to $2.4 billion from $2.11 billion last year.

Other auto names dragged down

Dana was seen towing the other names in the beleaguered automotive sector lower, with General Motors Corp.'s 8 3/8% notes due 2033 seen down ¾ point at 69.5 bid, 70 offered, and its General Motors Acceptance Corp. financial unit's 8% notes due 2031 down a point at 90.75 bid, 91.25 offered. Arch-rival Ford Motor Co.'s 7.45% notes due 2031 were down ¼ at 71 bid, 71.5 offered, while Ford Motor Credit's 7% notes due 2013 were down half a point at 88.5 bid, 89 offered.

Bankrupt former GM unit Delphi Corp.'s 6.55 % notes due 2006 were seen down ¾ point at 53.25 bid, 54, while its 7 1/8% notes due 2029 were half a point lower at 54.25 bid, 55 offered.

Casinos strong

Apart from the autos, a trader noted strength in the gaming sector, with the firming of the new Station Casinos bonds, which "had a nice little bid to them." Among the more established issues, he said, "the other paper pretty much hung in there" after having been "walking it down a little bit over the past week or two, a quarter to a half a point over the past five trading days." So the new bonds, he said, were "no real shock to the older paper."

He saw Wynn Gaming out with "pretty decent" quarterly numbers, which pushed the Las Vegas-based casino operator's 6 5/8% notes half a point higher at 97.75 bid, 98.7 offered. MGM Mirage's numbers were "pretty much in line with expectations," lifting its bonds by ¼ to ½ point across the board, but "nothing too dramatic." The MGM 6% notes due 2009 were half a point better at 99.5 bid, par issued.

Hilton Hotels' 7½% notes due 2017 were unchanged at 109.5 bid, 110.5 offered after Standard & Poor's downgraded the giant hotelier's corporate credit two notches to BB from BBB- previously, citing the costs and risks of Hilton's acquisition of the hotels of Britain's Hilton Group plc.

Donnelley rises

A trader saw R.H. Donnelley Corp.'s 6 7/8% notes due 2013 up 3/8 point at 93.5 bid, 94 offered, while its 8 7/8% notes due 2016 were half a point better at 104.5 bid, 105.5 offered.

Donnelley and the recently acquired Dex Media Inc. said Thursday that they had collectively paid down some $830 million of debt last year - and now that the two telephone directory publishers have been combined into one company they anticipate still further reductions to their consolidated $10.6 billion of debt ahead (see related story elsewhere in this issue).

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