GM boosted by Delphi plan; Delphi dips; E*Trade continues to rally; gaming sector steadies

By Stephanie N. Rotondo

Portland, Ore., Dec. 5 - General Motors Corp.'s bonds felt lighter Wednesday as the pressures brought on by its involvement with bankrupt Delphi Corp. - as well as its struggling financial subsidiaries - were slowly starting to dissipate.

A new plan between Delphi and its creditors boosted GM's bonds, along with new employment data that suggested a recession is not in the near future. News that the government was looking to help out in the mortgage sector also played a role in the automaker's gains, as well as those in GMAC LLC and Residential Capital LLC.

But despite GM's positive move on Delphi's new reorganization plan, investors seemed to give up on the parts supplier itself. Delphi's bonds slipped during the session, adding to the previous day's 12-point loss.

E*Trade Financial Corp.'s debt continued to rally, up as much as 5 points on the session. The bonds had moved up the previous trading day as market players started to see the recent cash infusion deal as more positive than negative.

In a week that brought poor quarterly figures and management upheavals, the gaming sector has been very volatile. But come Wednesday, Trump Entertainment Resorts Inc. and Isle of Capri, among others, managed - for the most part - to hold their ground in active trading.

In a day categorized as "sideways to firm," the CDX junk bond performance index edged up 5/8 of a point to 95 11/16 bid, 95 15/16 offered. The KDP High Yield Index also ended higher, up 0.15 to 77.90, while its yield slipped 1 basis point to 8.54%.

A sell-side source said that cash bonds were higher with equities.

This source also noted that in addition to rallying stock prices the junk market caught a lift from the financial headlines, including the Canadian central bank's decision to lower short term interest rates for the first time since April 2004, reducing them by 25 basis points to 4¼% from 4½%. The source also noted that there is a solidifying perception in the market that the Federal Reserve Bank's Federal Open Market Committee will also lower the federal funds rate when it meets in one week.

Meanwhile the primary market remained quiet on Wednesday, with no issues pricing.

New plan boosts GM...

General Motors breathed a sigh of relief - if not somewhat hesitantly - as former subsidiary Delphi Corp. managed to come to terms with its creditors.

A trader said GM's 8 3/8% notes due 2033 up 5/8 to 82 bid, 82.5 offered, while another quoted the notes at 81.5 bid, 83 offered.

The first trader said the situation between Delphi and its creditors was "kind of a cloud hanging over their heads," so its resolution was "a good thing" for GM. The trader also added that the newly released employment data helped to quell recession worries, "something auto companies fear."

Delphi announced Tuesday that it had reached agreement with its creditors, as well as GM, on its reorganization plan. Under the new amended plan, unsecured creditors will receive 77.3% of their claims in new stock and the opportunity to participate in a rights offering. Bondholders will recover 90% of their claims.

Still, the company said more amendments might come before a Thursday hearing on the plan. Delphi also said it is continuing to plan for an early 2008 bankruptcy exit, as it will lose its $2.55 billion investment deal if it has not emerged by March 31, 2008.

GM has been dealing with several financial sore spots recently. Along with Delphi's bankruptcy, the automotive company has seen its financial units GMAC and its subsidiary Residential Capital, faltering amid a mortgage breakdown. But relief in those areas is also on the way, as the government is looking to fix certain subprime interest rates for the next five years - a move aimed at halting the growing tide of foreclosures.

"It's got to be good for them," the trader said.

The trader quoted GMAC's 8% notes due 2031 better by 1½ points at 85 bid, 86 offered. Another trader pegged the bonds at 84.5 bid, 85.5 offered, up 1 point.

At another desk, a trader slotted ResCap's longer dated paper - issues due 2010 and higher - unchanged at 64.5 bid, 65.5 offered. Another trader called the 6 1/8% notes due 2008 about ½ point better at 76.5 bid, 77.5 offered.

Elsewhere in the mortgage sector, Countrywide Financial Corp.'s 3¼% notes due 2008 gained 1 point to end at 89 bid, 90.5 offered. Its 6¼% notes due 2016 were likewise 1 point up at 61 bid, 62 offered.

...but Delphi knocked down

The agreement between Delphi might have been good for GM, but so far it has not had the same effect on the automotive parts supplier itself.

Delphi's bonds slipped as much as 12 points in the previous session after the agreement with the creditor groups was announced. On Wednesday, the bonds continued to decline.

"There was decent selling going on [Tuesday]," a trader said. "I think there was just some follow through, and speculation on what is going on with the plan."

On top of that, the trader said that those involved in the name are "tired."

"Maybe they have just given up," he said.

Another trader said Delphi's bonds were "really getting crushed.

"People at this point are just saying I'm done, I'm tired," he said

The first trader called the name active and 1 to 1½ points lower "depending on the issue." He pegged the 6.55% notes that were to have matured last year at 56.5 bid, 57.5 offered, the 6½% notes due 2009 at 57 bid, 57.5 offered, the 6½% notes due 2013 at 55.5 bid, 56.5 offered and the 7 1/8% notes due 2029 at 58.5 bid, 59.5 offered.

The second trader placed the 2009 paper at 56.5 bid, 57.5 offered and the 2029 issue at 57 bid, 59 offered.

Elsewhere, a trader called the 2013 piece "a big mover lately," down another 2 points on the session at 54.5 bid, 55.5 offered. However, he said the 8¼% notes due 2033 gained 2 points to close at 37 bid, 39 offered.

"That doesn't make sense," he said. "I guess somebody found a reason to trade them at those levels."

E*Trade draws out rebound

E*Trade's debt continued to rally in Wednesday trading, with traders calling the bonds up as much as 5 points on the day.

A trader quoted the 8% notes due 2011 up 2 points at 78 bid, 80 offered, while another deemed the bonds 5 points better at 79 bid, 81 offered, up from 74 bid, 76.5 offered.

The bonds had moved up in the previous session as investors began to see a $2.55 billion cash infusion from Citadel Investors Group as a sign that someone is interested in the flailing company. The company has been one of many hit by the mortgage meltdown of 2007.

Also on Wednesday, a group of shareholders led by Sebastian River Holding's Inc. filed a lawsuit against the company under the under the civil section of the Racketeer Influenced and Corrupt Organizations Act. The group claims that the company unlawfully manipulated its stock.

Gaming sector active, steady

Poor quarterly numbers and management changes caused quite a stir in the gaming sector over the course of the week. In Wednesday's trading, many gaming names, such as Trump Entertainment and Isle of Capri, managed to hold their ground - if not gain some - in active trading.

A trader called Trump's 8½% notes due 2015 "not really changed" at 76 bid, 77 offered, while another placed the bonds down slightly at 76.5 bid, 77 offered. At another desk, a trader said the Trump notes were unchanged to "maybe down a point" at 75 bid, 76 offered.

Meanwhile, Isle of Capri's 7% notes due 2014 closed unchanged to ½ point better at 84 bid, 84.5 offered.

Wynn Las Vegas LLC's debt was seen firmer, its 6 5/8% notes due 2014 up ½ point to 97 bid, 98 offered. But Harrah's Operating Co. Inc.'s 5¾% notes due 2017 fell slightly to 69.25 bid, 70.75 offered.

Conference comments help homebuilders

Homebuilders were seen firming over the session, attributed to "positive" comments heard at the Bank of America conference in Orlando.

Several struggling homebuilders have presented at the conference. On Tuesday, Andrew Parnes, chief financial officer of Standard Pacific Corp., told an audience of market participants that while the company is preparing for another difficult year in 2008, plans to off load land assets are continuing and include yet another benefit to downsizing inventory: millions of dollars in tax refunds.

A trader said Standard Pacific's bonds were subsequently "up a good deal, especially the short dated paper." He pegged the 8½% notes due 2008 at 90 bid, 91 offered.

At another desk, a trader said Technical Olympic USA Inc.'s bonds were also better, its 8¼% notes due 2014 at 40 bid, 42 offered and its 9% notes due 2010 at 38.5 bid, 40.5 offered. The trader added that there was light volume in the name.

"They got somebody excited," he said.

Market tidbits

Community Health Systems Inc.'s 4¼% notes moved up ½ point to 101 bid, 101.5 offered, while Tenet Healthcare Corp.'s 9 7/8% notes due 2014 gained a half to a full point, closing at 95 bid, 95.5 offered.

Elsewhere, Blockbuster Inc.'s bonds were stronger at the end of the trading day, closing up to 84 bid, 85 offered from 83.5 bid, 84.5 offered. The stock, however, slid 14 cents, or 4.22%, to $3.18, as investors started worrying about $1 DVD rentals being sold at such establishments as McDonald's.

U.S. Steel brings split-rated deal

Although no junk issues were priced on Wednesday, some high yield market watchers kept an eye on an upsized, split-rated deal from United States Steel Corp.

The Pittsburgh company priced a $500 million issue of 7% 10-year senior unsecured notes (Baa3/BB+) at 99.087 to yield 7 1/8%.

The notes came on top of the price talk.

Banc of America Securities, JP Morgan and Scotia Capital were the bookrunners for the transaction, which was priced off the investment grade desk.

The deal, a debt refinancing related to an acquisition, was upsized from $400 million.

Four in the market

Four companies are presently in the market with announced deals expected to price in the near to intermediate term.

NewPage Corp. is marketing a $456 million add-on to its 10% senior secured second-lien notes due May 1, 2012, which is expected to price late this week or early next week via Goldman Sachs.

Unisys Corp. is expected to price its $250 million offering of eight-year senior notes (existing ratings Ba3/BB-) this week, via Bear Stearns, Banc of America Securities, and Citigroup.

Legends Gaming, LLC, along with Legend Finance Corp., is in the market with a $220 million offering of five-year senior secured notes - a debt refinancing deal via Jefferies & Co., which is expected to price next week.

And Sequa Corp. is in the market with a $700 million two-part offering of eight-year senior unsecured notes (Caa2/CCC+).

The backlog

Radio silence has prevailed with respect to the backlog of hung LBO-related bond debt for the past few days.

One source told Prospect News on Wednesday that underwriters are wrestling with that backlog as the formulate their projections for the year ahead, and noted that a healthy high yield market might readily absorb the backlog, but a weak market could choke up were underwriters to start rolling it out unjudiciously in the months ahead.

Prospect News asked this source, a high yield syndicate official, to give a spot on the backlog which was initially thought to be well north of $300 billion when the problem erupted over the summer.

"It depends upon what you count as having gone away, and what you believe is still out there," the official said, adding that the overhang, in round numbers, is thought to presently amount to approximately $75 billion on the bond side, and $175 billion on the bank loan side.

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