Freescale, other techs lower; autos weak

By Paul Deckelman and Paul A. Harris

New York, Jan. 4 - Established names in the high-tech sector - Freescale Semiconductor Inc., Advanced Micro Devices Inc. and NXP Semiconductors - were lower, most likely in response to an equity analyst's downgrade of industry giant Intel Corp.

Automotive names like General Motors Corp. and Ford Motor Co. continued to ride in the breakdown lane, hurt by the soft December and full-year sales figures announced on Thursday.

Overall, sources were marking the high yield market lower on Friday.

A syndicate official, taking note of Friday's retreating stock prices - with the Dow Jones Industrial Average down 2%, the S&P 500 down 2½% and the Nasdaq down 3.8% - commented that the capital markets in general are laboring beneath a load of negative headline news.

Two of the young new year's news items, in particular, are corroding investor sentiment, the syndicate source said: the Institute for Supply Management's report that its manufacturing index fell to 47.7% for December from 50.8% in November, and the U.S. Labor Department's report that unemployment has risen to 5%, a two-year high.

Nothing has changed

A senior high yield syndicate official told Prospect News on Friday afternoon that the uptick everybody was hoping for in the new year has not materialized.

"Nothing really has changed, of course," the official said, adding that high yield bond prices were generally softer on the day.

The banker said that the technicals which prevailed during the run-up to the end of 2007 remain in place. Hence investors continue to have the upper hand.

Open for the quality

Apart from UTAC, the only deal to launch during the week came from Southwestern Energy Co. which will begin a roadshow on Monday for its $400 million offering of 10-year senior bullet notes, a debt refinancing deal via joint bookrunners JP Morgan, Banc of America Securities LLC and RBS Greenwich Capital.

That deal is expected to price by the end of the week.

With their higher-tier credit ratings, BB+ from Standard & Poor's and an expected Ba2 from Moody's, the Southwestern Energy notes represent the kind of issuance that should continue to receive a reasonably warm reception from the buy-side in spite of the present turbulence, according to the senior high yield syndicate official.

However, the banker said, issuers of this type are unlikely to appear in order to opportunistically refinance debt. Rather, they will be issuers compelled to come because of maturities, acquisition timing, etc.

The sell-sider said that such issuers will most likely continue to see good executions, especially when compared to the hung LBOs.

But even the higher rated issuers will pay up, the banker conceded, adding that one job the sell-side has lately undertaken is managing the expectations of issuers with respect to the kinds of interest rates they can expect to pay.

The source estimated that present market conditions are finding high grade issuers paying a new issue premium of 25 to 35 basis points.

Junk issuers from the double-B range can expect to pay a new issue premium of 50 basis points, according to the sell-sider who added: "Right now we're not encouraging triple-C issuers to come to the market, at all, because they would be in direct competition with the LBOs."

The week ahead

Apart from UTAC and Southwestern Energy, nothing materialized during the 2007-2008 crossover week as business expected to price during the first full week of 2008.

Solutia Inc. plans to begin a roadshow for its $400 million offering of eight-year senior notes (expected ratings B2/B) a few days after next Monday's bank meeting for its $1.6 billion credit facility, according to Susannah Livingston, Solutia's director of investor relations.

Citigroup, Goldman Sachs & Co. and Deutsche Bank Securities are leading both the bank and bond portions of the financing, which will be used to fund Solutia's exit from Chapter 11 bankruptcy.

Although Livingston declined to pin down the timing any closer, an observer might infer that the Solutia deal could launch before the end of the week.

Elsewhere, sell-side sources told Prospect News during the three sessions of the holiday-abbreviated week past that roadshow announcements are expected early in the first full week of January as senior players return from holiday vacation and the staffs return to full strength.

Junk follows stocks down

A trader said that "everything got hit with the ugly stick today," noting that some issues were down more than a point or two, as junk bonds took their cue from the equity marts, which fell after the government reported that non-farm U.S. payrolls grew by 18,000 last month - only about one-quarter the rate that Wall Street had been expecting - while unemployment jumped to a two-year high of 5%.

Another trader said that the widely followed CDX index of junk market performance began declining in the morning and continued on the downside all the day through, finishing down ¾ point at 93 5/8 bid, 93 7/8 offered. The KDP High Yield Daily Index slid 0.52 on the day to 76.74, while its yield ballooned out by 14 basis points to 8.99%.

In the broader market, declining issues topped advancers nearly two to one. Market activity, reflected in the overall dollar volume, was up about 4% from Thursday's levels.

Semiconductor names sink

A trader said that high-tech manufacturing names such as Freescale, AMD and NXP were all lower, in line with general weakness in tech stocks after industry leader Intel was lowered to "neutral" from "overweight" previously by JPMorgan Chase & Co.

JPMorgan analysts, including Christopher Danely, wrote in a research note Friday that a slowdown in orders from personal-computer manufacturers may result in a " downside to estimates" in the first half of 2008.

That was enough to put the junk semiconductor sector into a crash mode; a trader saw Austin, Texas-chipmaker Freescale's 10 1/8% notes due 2016 down 2 points at 78 bid, 79 offered, as "all the tech stuff was down."

He also saw AMD's 7¾% notes due 2012 off 3 points at 79 bid, 80 offered, while NXP's 9½% notes due 2015 were 2 points lower at 88 bid, 89 offered.

A market source saw Freescale's 8 7/8% notes due 2014 down 3 points at 85 bid, while Chandler, Ariz.-based semiconductor packaging and test services producer Amkor Technology Inc.'s 7¾% notes due 2013 down more than a point at 92.5.

At another desk, Freescale's 8 7/8s were seen down nearly 4 points at 84 bid, while NXP's 91/2s were off some 3 ½ points at 88.5.

Carmakers' skid continues

Things were no better in the more traditional industrial manufacturing sector, where the big automotive benchmark bonds of GM and Ford continued to head lower in response to bad December and full-year 2007 sales numbers reported Wednesday.

The news that Ford had been dethroned by upstart rival Toyota as the Number-Two car- and truck- seller in the United States - the first time in literally decades in which Ford has not held that exalted perch - even helped to overshadow the news of Ford's progress in its efforts to sell its iconic Jaguar and Land Rover nameplates, with India's Tata Motors having emerged as the leading potential buyer.

Ford's 7.45% bonds due 2031 were seen by a trader down ¾ point at 72 bid, 73 offered, while its Ford Motor Credit Co. financing arm's 7% notes due 2013 were down 2 points at 82.5 bid. The trader meantime saw GM's benchmark 8 3/8% bonds due 2033 slide 1¾ points to 77.25 bid, 77.75 offered.

Another trader saw the GM bonds down 1 point at 77.5 bid, 78.5 offered, and saw the 49% GM-owned GMAC LLC financing unit's 8% bonds due 2031 down ½ point at 81.5 bid, 82.5 offered. GM's 7 1/8% notes due 2013 were quoted down 2 points at 85.5 bid, while GMAC's 6 7/8% notes due 2011 were likewise down a deuce at 83.

In general, "the autos got hit," a trader said, quoting partsmaker ArvinMeritor Inc.'s 8 1/8% notes due 2015 down 2 points at 85 bid, 86 offered, while sector peer Lear Corp.'s 8¾% notes due 2016 were a point lower at 89 bid, 90 offered.

He said that bankrupt Troy, Mich.-based partsmaker Delphi Corp. was "the big one" in the automotive realm Friday, quoting its 6½% notes due 2013 down a whopping 6 points to 50 bid, 52 offered, even as the company moved closer to its goal of emerging from Chapter 11 early this year.

Another trader saw its 6.55% notes due 2006 fall to 51 bid, 53 offered from 56 bid, 58 offered, and yet another trader who also saw the company's bonds down 5 points said Delphi "got killed."

Housing gets hammered

The weak payroll and higher unemployment numbers reported by Washington Friday raised fears that the economy is sliding into a recession, taking with it any hopes that the now two-year long slowdown in the homebuilding industry might end anytime soon. That pushed the stock of most builders down on Friday, and their bonds were also down in tandem.

Among the losers were Hovnanian Enterprises Inc.'s 6 3/8% notes due 2014, down 1 point at 69, while Beazer Homes USA Inc.'s 8 5/8% notes due 2011 were down 2 points at 73.5 bid, 75.5 offered. Standard Pacific Corp.'s 7% notes due 2015 lost a point to 64 bid, 66 offered. A trader saw Tousa Inc.'s bonds unchanged on the day, with the 9% notes due 2010 and the 8¼% notes due 2011 still at 45 bid, 47 offered.

And it looks like there's still more pain ahead for the struggling sector, as Moody's Investors Service analyst John Lonski noted in a research note Friday that both mortgage applications from potential homebuyers and applications for mortgage refinancings "sank deeply during the final three weeks of December."

December's lowest 30-year mortgage yield since October 2005 "was of little help to mortgage demand," Lonski declared adding that "apparently, housing is in dire need of a confidence-boosting 50 basis point rate cut from the Fed."

The Moody's analyst asserted that "even lower borrowing costs might compensate for possibly mounting fears of persistent home price deflation. All else the same, as mortgage yields fall, home ownership becomes more attractive vis-à-vis renting and, as a result, home prices ought to be subject to less downward pressure."

But the numbers showed that after rising in each of the four months ended November by 7.8%, on average, applications for mortgage refinancings sank by 6.9% monthly in December, even though mortgage yields were down, in line with generally lower rates following several Fed rate cuts over the last few months. Moreover, the Moody's research note added, "after growing yearly in each of the 9 months ended November, mortgage applications from potential homebuyers sank by 2.8% annually in December."

Tembec trading flat

A trader saw Tembec's bonds "all the same and trading flat," at 47 bid, 49 offered on its 8 5/8% notes due 2009.

Another trader said that the company's bonds "were trading flat for the last three days." He said the company - which recently unveiled a $1.2 billion recapitalization plan aimed at sharply cutting its debt - had announced on a conference call on Monday that interest would no longer accrue on its bonds. "They paid that one coupon [due Jan. 1] on the 8 5/8% and then that was it," he said.

Another trader confirmed that the bonds had been trading flat for a couple of days, following an announcement on Monday.

Tembec's 8½% notes due 2011 were down 1 point at 46 bid.

Rite Aid lower again

Rite Aid Corp. bonds, which retreated on Thursday after the Camp Hill, Pa.-based drugstore chain operator reported a 0.5% decline from year-ago levels in same-store sales, the key retailing industry performance metric, were again on the downside Friday. Its 8 5/8% notes due 2015, which lost nearly 4 points on Thursday, were down another 1½ Friday to the 75 level.

Quebecor World Inc.'s bonds, which have mostly been in retreat lately since the Montreal-based commercial printer's deal to sell its European operations fell through, were one of the few recognizable names seen firming Friday. Its 4 7/8% notes due 2008 were up more than a point to the 89.5 region, while its 6 1/8% notes due 2013 were up about the same amount, rising to 76.

Jarden sinks

Elsewhere, Jarden Corp.'s 7½% notes due 2017 were being quoted down more than 3 points in fairly active trading at around the 84 level - even though there was no fresh news on the Rye, N.Y.-based consumer products company, which makes a diverse range of things including toothpicks, coffee makers, paint brushes, home safety equipment, camping gear, fans and heaters and personal and animal grooming products.

The bonds peaked around the par level last fall, and have been on the slide since then, and are now trading above a 10% yield.

On an investment-oriented internet bulletin board, a poster noted that "there are like 80 million shares outstanding, so at $20 a share the stock of this pig [sic], I mean amazing conglomerate, is worth 1.6 [billion dollars] There are like 600 million [dollars] in bonds and those holders are more than happy to unload their bonds at 84 cents on the dollar...seems like a disconnect. I wonder who is right, stockholders or bondholders?"

Noting the company's previously announced plans to buy back up to $100 million of its common stock, he also rhetorically asked Jarden's chairman and chief executive officer, Martin E. Franklin, "Martin do you think you should divert the $100 million from the stock buyback to a bond buyback? Given your prodigious cash flow from sporting goods and appliances maybe just do a $100 million in stock, $100 million in bonds, and maybe $100 million to pay down bank debt."

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