Autos struggle again in heavy market; Allis Chalmers prices upsized deal; funds see $6.45 million outflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 12 - High-yield bonds were seen mostly lower Thursday as the secondary market seemed to take its cue from equities, which were behind the 8-ball all day after stock analysts downgraded two Dow Jones Industrial Average components, Coca-Cola Co. and JP Morgan Chase & Co., causing the Dow to fall 81 points and other equity indexes to decline in sympathy. A junk trader, noting the carnage on the equity side of the ledger, opined that "the [high-yield] market just seemed a little heavy, as stocks were off considerably."

The automotive sector in particular continued to spin its wheels, with the latest piece of bad news being Moody's Investors Service revising downward its outlook on Lear Corp., an action that followed by a day the Moody's two-notch downgrade of Ford Motor Co. and the carmaker's financial arm, Ford Motor Credit Co. Most market participants were quoting the bonds of both Ford and its larger arch-rival, General Motors Corp., and their respective financial units, Ford Credit and General Motors Acceptance Corp., lower.

One sell-side official marked the broad market down a quarter point to half a point on the session.

In the primary market, Allis-Chalmers Energy Inc. successfully priced a slightly upsized offering of eight-year notes. AMC Entertainment Inc. was heard by syndicate sources to be getting ready to bring its planned issue of 10-year notes to market next week, and price talk emerged on R.H. Donnelley Corp.'s planned three-part mega-deal, which will tip the scales at a hefty $2.1 billion.

And after trading had wound down for the last full session of the week (Friday is an abbreviated trading day, ahead of Monday's Martin Luther King Jr. Day federal holiday), market 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 $6.45 million more left the funds than came into them.

That pretty much counterbalanced the almost equally modest $8.8 million net inflow which was seen in the previous week, ended Wednesday, Jan. 4.

For the year so far, a net inflow of $2.35 million has been seen, with one week of inflows and one week of outflows since the start of the year.

The latest outflow, however small, was the fourth in the last five weeks, dating back to mid-December, during which time outflows have totaled about $848 million, according to a Prospect News analysis of the figures. That in turn confirmed the predominantly negative trend that was in evidence throughout most of 2005, when around $11.483 billion more left the funds than came into them, according to the Prospect News analysis. That was a much more severe hemorrhage than the approximately $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.

Allis-Chalmers on wide end of talk

Thursday's sole new issue came from Houston-based oilfield services provider Allis-Chalmers Energy Inc., which priced a slightly upsized $160 million issue of eight-year senior notes (B3/B-) at par to yield 9%.

The acquisition financing and debt refinancing deal, led by RBC Capital Markets, came at the wide end of the 8¾% to 9% price talk. It was increased from $150 million.

A big Friday the 13th

Price talk emerged on two mega-deals expected to price on Friday.

R.H. Donnelley Corp. issued price talk Thursday on its $2.1 billion proceeds offering of senior notes in three tranches (Caa1/B+/CCC+).

Pricing is set for Friday morning.

The Cary, N.C.-based Yellow Pages publisher talked its $1.2 billion series A-3 10-year senior notes at 8¾% to 9%. Meanwhile the company talked its $600 million proceeds series A-2 6 7/8% eight-year senior discount notes at 8½% to 8¾%.

Meanwhile R.H. Donnelley also talked its $332 million proceeds series A-1 6 7/8% eight-year senior discount notes at 8 ½% to 8 ¾%.

JP Morgan, Bear Stearns & Co. and Credit Suisse First Boston are joint bookrunners.

And from Europe, Fresenius Finance BV issued price talk on its €1 billion two-part offering of senior notes via Credit Suisse First Boston.

The Bad Homburg, Germany-based integrated provider of kidney dialysis products and services talked its seven-year bullets at 5 1/8% to 5¼% or a spread to mid-swaps of 187.5 to 200 basis points.

Meanwhile the 10-year notes, which come with five years of call protection, are talked at 5½% to 5 5/8%, or 37.5 basis points area behind the seven-year notes on a spread to mid-swaps basis.

Tranche sizes remain to be determined.

A building calendar?

In the waning days of 2005 and since the beginning of the new year sources have advised Prospect News that a conspicuous build up of the forward calendar is pending.

Earlier this week an investor spoke of $20 billion in the pipeline.

And throughout the week sell-siders have said that an impressive amount of new issue announcements are pending.

On Thursday one sell-side official conceded that perhaps thus far into 2006 the forward calendar has not built up as precipitously as some were expecting.

However, the source added, look for a considerable build-up to take place early next week.

Quebecor, Inergy up in trading

The new Allis-Chalmers Energy 9% notes due 2014 priced too late in the session for any meaningful aftermarket activity.

Among other issues which priced earlier in the week, Quebecor Media Inc.'s new 7¾% notes due 2016, which priced late Wednesday at par, were seen having pushed as high as 101.5 bid, 102 offered - clearly the star performer among the newly freed bonds.

A trader saw Inergy LP's new 8¼% notes due 2016, which had also priced at par on Wednesday, now trading at 100.625 bid, 101.125 offered.

Among issues that made their respective debuts on Tuesday, Westlake Chemical Corp.'s new 6 5/8% notes due 2016 held steady at 99.5 bid, 100.5 offered, unchanged on the session and little changed from their 99.674 issue price.

The trader saw Nevada Power Co.'s 5.95% notes due 2016 at par bid, 101 offered, a little above their 99.741 issue price, while AmeriGas Partners LP's new 7 1/8% notes due 2016 were at 99.5 bid, 100.5 offered, slightly below their par issue price.

Autos continue slump

Back among existing issues not having new-deal ramifications, automotive sector bonds continued to take their lumps Thursday, as the autosphere pulled back from the solid gains it had notched in the first trading week of the new year.

News out of the sector included Moody's downward revision of its outlook for Southfield, Mich.-based seating and interior components maker Lear in the aftermath of the company's announcement of a $342 million charge against earnings. The agency, while affirming Lear's Ba2 rating, lowered its outlook to negative from stable, citing uncertainty about the company's North American sales this year.

A trader saw Lear's 5¾% notes due 2014 down a point at 82 bid, 83 offered, while another saw Lear's 8.11% notes due 2009 half a point easier at 92.25 bid, 93.25 offered.

While Lear said earlier in the session that it expects earnings to improve this year, the company chose not to issue any specific guidance, citing uncertainty over industry demand and the prices of the raw materials it uses.

Moody's noted the pressure that soaring raw materials costs have put on Lear's bottom line, and also cited the costs associated with its previously announced restructuring.

GM lower

Also among the auto names, a trader saw GM's benchmark 8 3/8% notes due 2033 down 1¼ point at 70 bid, 71 offered, although he saw GM's 7 1/8% notes due 2013 unchanged at 73.25. GMAC's 8% notes due 2031 were at 101 bid, 102 offered, down half a point.

Another trader pegged the GM bonds pretty much unchanged around that same 70.25 bid, 71.25 offered level, ahead of a much anticipated briefing for automotive industry analysts that GM will hold on Friday.

Ahead of that presentation, at which company executives will discuss GM's turnaround strategy, the carmaker said in a statement late Thursday that it expects to show global growth in vehicle sales in 2006, although it declined to attach a number to that forecast. GM said that global vehicle sales grew 2% in 2005 to about 9.2 million units, even though its domestic sales were off badly, due to high gas prices and aggressive inroads that Japanese carmakers have been making on GM's home turf in the United States.

The Detroit giant's main rival, Ford, was seen largely unchanged to lower on Thursday after having pretty well withstood Wednesday's widely anticipated two-notch ratings downgrade by Moody's. That move followed a similar downgrade last week by Standard & Poor's.

A trader saw Ford's flagship issue, the 7.45% notes due 2031, at 70.75 bid, off ¼ point.

However, another trader estimated that those Ford bonds had lost a point to close at 70.25 bid, 71.25 offered, with the Ford Credit 7% notes due 2013 likewise down a point to 88.5 bid, 89.5 offered.

Parts companies down

Among the automotive parts makers, other than Lear, bankrupt former GM unit Delphi Corp.'s 6.55% notes due 2006 were being quoted down nearly a point at 55.5 bid, with the Troy, Mich.-based auto electronics manufacturer's 7 1/8% notes due 2029 also down a point to that same 55.5 bid, 56.5 offered level.

Among the non-bankrupt parts makers, a trader saw former Ford unit Visteon Corp.'s 8¼% notes due 2010 down 1½ points at 85 bid, 86 offered, while Dana Corp. - whose ratings were cut several notches on Wednesday by Fitch Ratings - was little changed at 71.75 bid, 72.75 offered for the Toledo, Ohio-based automotive systems manufacturer's 5.85% notes due 2015.

The trader also saw Dura Automotive Systems Inc.'s 9% notes due 2009 off 1¾ at 55 bid, 56.5 offered, while its 8 5/8% notes due 2012 were off half a point at 84 bid, 85 offered.

A trader saw American Axle & Manufacturing Inc.'s 5¼% notes due 2014 down 1½ points at 81 bid, 82 offered after the company issued lower guidance. The company expects its 2006 earnings to be in the range of $1.20 to $1.30 per share, assuming its customers' production volumes for the major North American light truck programs it currently supports will be approximately 5 percent lower than in 2005.

And Metaldyne Corp. - whose 11% notes due 2012 had jumped on Tuesday on the news that the Plymouth, Mich.-based automotive metal stamping company had agreed to sell its underperforming North American metal forging unit in a $129 million deal - continued to fall back from those peak levels.

A trader saw the bonds - which had shot up to 85 bid on Tuesday on the news from prior levels around 80, came off that peak to end Tuesday around 83 bid, 85 offered, and then gave up another point Wednesday to finish at 82 bid, 84 offered - down another point Thursday at 81 bid, 82 offered.

At another desk, a trader saw those bonds quoted down even further at 79 bid, 80 offered, which he estimated to be down four points on the day.

Outside of the automotive component, things were generally quiet and mostly at lower levels.

A trader saw assorted names lower, including Calpine Corp., whose bonds he said were off two points from prior levels, and Movie Gallery Inc. He saw the Dothan, Ala.-based Number-Two video rental chain operator's 11% bonds due 2012 likewise down two points at 72.25 bid, 72.75 offered.

Six Flags steady

He said that Six Flags Inc. bonds were "pretty quiet and in line with where they had been," even though the Oklahoma-based theme park operator's stock firmed about 7% after Bear Stearns issued a bullish research note about the company's prospects under its new management team, who seized control of the underperforming company with the help of disgruntled shareholders during a proxy battle last month.

Analyst R. Glen Reid wrote that "a PKS capital structure rationalization is eminently feasible in the next two years" and said that the company would aim to pay down debt in order to give its equity holders a claim on its free cash flow and predicted that "having met with new management, we believe that meeting such a goal, through asset sales and higher ad revenue, is likely."

Reid said that the new administration, led by recently installed chairman Daniel Snyder and chief executive officer Mark Shapiro, could realize as much as $1 billion that could be put to debt reduction from asset sales, including the sale of underdeveloped land the company holds, the possible sale of a Los Angeles-area theme park, the sale of the site of its now-closed AstroWorld park in Houston and even the sale of food equipment at its nearly three dozen remaining parks.

In upgrading his recommendation on the company's stock, the Bear Stearns analyst said that "we assume significant debt reduction and modest EBITDA gains."

Despite that heady assessment, the trader said, Six Flags' 9 5/8% notes due 2014 were unchanged at 99 bid, par offered.

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