GM rise resumes, American Axle bounces, gaming off on latest numbers; Caribbean Restaurants talks deal

By Paul Deckelman

New York, Aug. 11 - General Motors Corp.'s bonds resumed their upside ride on Monday - after having spent Friday's session pretty much idling - helped by a rise in its shares amidst an overall more bullish stock market fueled by falling oil prices. Optimistic remarks by GM's chief executive officer certainly didn't hurt.

With GM heading upward, bonds and shares of key GM supplier American Axle & Manufacturing Holdings Inc. were seen better, bouncing back from a wild Friday session which saw the notes mostly gyrating at lower levels.

Other upsiders included Constellation Brands Inc. and, from deep in distressed territory, bankrupt homebuilder WCI Communities Inc.

On the downside, gaming names such as Trump Entertainment Resorts Inc. and Harrah's Entertainment Inc. moved lower as Nevada and New Jersey gaming regulators released their latest revenue figures, showing that most of the Las Vegas and Atlantic City casinos took in less winnings in June and July, respectively, than they did a year ago - a function of continued lagging confidence in the economy and higher fuel prices.

In the primary market, price talk emerged on Caribbean Restaurants LLC's upcoming offering of four-year bonds, with the new notes expected to price at a discount to par in order to boost the yield offered to investors.

Market indicators move quietly upward

A trader said that the widely followed CDX index of junk bond performance was up ½ point on Monday, quoting it at 93 3/16 bid, 93 5/16 offered. The KDP High Yield Daily Index rose by 15 basis points to end at 70.50, while its yield narrowed by 3bps to 10.59%.

In the broader market, advancing issues led decliners by a five-to-three margin. Activity, represented by dollar volume, fell by 5% from the already sharply curtailed levels seen on Friday.

Several traders expressed the general proposition that as is typical for a summer Monday, activity was pretty sparse.

"It's so quiet, we did only two trades," one said, while another described things as "pretty dead today."

Although a number of issues were seen at higher levels, mostly riding the coattails of the stock market, which saw the bellwether Dow Jones Industrial Average bounce around at higher levels before coming down from its peak to end up 48.03 points, or 0.41%, at 11,782.35, with broader indexes up as well, a trader cautioned that "I don't want you to think the high yield market is very strong, because it's really item by item," largely centered on specific credits reacting to news developments, or, more intangibly, changes in investor sentiment.

GM rebound resumes

One such credit reaping the benefit of better investor feeling lately has been General Motors' bonds, such as the Detroit giant's benchmark 8 3/8% bonds due 2033. Those widely traded bonds had been beaten down to as low as the 46 mark in the first couple of sessions in August following the carmaker's release of its second-quarter numbers on Aug. 1, which showed a whopping $15.5 billion net loss, GM's third-worst red-ink bath in its 100-year history. Later that same day, GM, along with other carmakers, reported a sharp slide in July sales from year-earlier levels, further casting a pall over the whole automotive sector.

But after having traded around those lows early last week, the bonds began to rebound, helped by short covering and investor feeling that the sell-off had been overdone, traders said. They were back up to just over the 50 level on Friday.

In Monday's dealings, a trader saw the benchmarks at 53 bid, up from Friday's levels in the lower 50s, and saw GM's 49%-owned automotive financing unit GMAC LLC's 8% bonds due 2031 at 58 bid, up 1½ points.

A second trader saw the 8 3/8% bonds up a point at 53.5 bid, 54.5 offered, but said GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were unchanged at 54 bid, 55 offered.

A market source saw GM's 7 1/8% notes due 2013 get as good as 57, up more than 2 points on the session, while its GMAC's 6 7/8% notes due 2012 were marginally better around the 63 mark. At another desk, the 8 3/8s were being quoted around 52.75, the 7 1/8s at 61, and GMAC's 8s hovered at 59.5. The latter's 7¼% notes due 2011 were pegged at the 68.75 level.

Yet another trader saw GM's 7.70% paper due 2016 get as good as 53 bid, 54 offered near the close versus 50 bid, 51 offered on Friday. "Why, I'm not sure," he said.

However, lest anyone get too exuberant because of the GM bonds, he added the caveat that GM's bond spreads "are compressing too, which means that it's almost trading like a bankruptcy. They used to trade on a yield to-maturity basis, but now they are trading almost in line dollar-for-dollar, which almost signifies that they're going to be trading flat." With the spreads having compressed, "someone who did spread trades is doing well."

Several analysts and other forecasters have in recent weeks mentioned the possibility that the once-mighty GM could, in fact find itself in a bankruptcy scenario of it continues to burn through its cash faster than a V-8 engine burns through the contents of an SUV's gas tank - Merrill Lynch & Co., for instance said last month said such a scenario was "not impossible," and credit-default swaps on GM bonds recently traded at levels implying as much as a 90% probability of default, market-watchers said.

However, on Monday, GM bond and stock investors would have none of it - its New York Stock Exchange-traded shares were up 73 cents, or 7.28%, to finish at $10.76. Volume of 35 million shares was about 25% higher than usual.

GM's paper was helped by news reports quoting its chief executive officer, Rick Wagoner, as saying that "the pain is largely behind us" in terms of domestic job cuts, retiree healthcare costs and pension problems for the troubled carmaker.

He said that GM would be in "a pretty good position," once it accomplishes its recently announced plans to cut its North American manufacturing capacity to 3.7 million units a year through layoffs, shift eliminations and, in some cases, factory closings, particularly those plants that make the larger vehicles that have pretty much stopped selling in the face of $4 per gallon gasoline.

With that magic figure on everyone's minds, the sharp recent comedown in world oil prices and, eventually, U.S. gasoline prices, was seen as another factor cheering GM investors. Light, sweet crude oil for September delivery, continuing its pullback from its historic highs above $147 per barrel hit in mid-July, finished at a new three-month low on the New York Mercantile Exchange on Monday of $114.45, down 75 cents on the day, its lowest close since May 1, and at one point actually dipped down to $112.72. Some analysts were predicting the retreat could continue down to the $100 per barrel mark, or even below that; meanwhile U.S. retail gasoline prices edged down to $3.81 a gallon, on average; they're down about 30 cents from the peak average of $4.11 seen around mid-July.

American Axle makes a comeback

Better levels for GM translated into better levels for automotive parts makers, on investor hopes that they might be hurt too severely by the production cutbacks announced recently by GM, Ford and their other rival, Chrysler LLC.

Major GM supplier American Axle & Manufacturing Holdings' 7 7/8% notes due 2017, which on Friday had bounced around at mostly lower levels before going out pretty much unchanged at 57, had moved up to above 59 on several round-lot trades.

However, no dealings were seen in its 5¼% notes due 2014 which had "gotten hammered" on Friday, a trader said, all the way down to 54 bid, a more than 7 point drop, on no fresh news. The Detroit-based maker of truck axle's NYSE-traded shares meantime shot up 88 cents, or 15.41%, to $6.59, although volume of 2.7 million matched the usual turnover.

Besides American Axle, other auto parts credits hitching a ride with GM Monday included Visteon Corp., whose 8¼% notes due 2010 were quoted up 1½ points at 84.5, Lear Corp., whose 5¾% notes due 2014 rose nearly 2 points to 72, and Goodyear Tire & Rubber Co.'s 7.857% notes due 2011, which firmed to levels just below par.

Constellation Brands remains bubbly

Outside of the autosphere, Constellation Brands' bonds "continue to do better," a trader said, citing the "decent" quarterly results that the Fairport, N.Y.-based wine, liquor and beer manufacturer, importer and distributor reported last month as well as its statement last week that it expects to use the net proceeds from its sale of some Australian winery assets to reduce overall borrowings.

He said the company's bellwether 8 3/8% notes due 2014 "keep going up every day," going out Monday at 103.625 bid, 103.875 offered, "which is up another ¼ to ½ point today." He noted that company executives said last week that they would "look at" opportunities to retire debt. "So those bonds are off their [recent] lows, nicely."

Sprint up, busily

One of the busier names seen in Monday's relatively restrained trading was Sprint Nextel Corp., whose 6% notes due 2016 had pushed about ½ point higher to 87.5 in what a market source characterized as busy dealings.

Other risers included the Overland Park, Kan.-based wireless provider's Sprint Capital Corp. 7 5/8% notes due 201, seen up about ½ point at 98.5, and the latter's 8 3/8% notes due 2012, which rose about a point to the par level.

Sprint continues to rebound from the lows it hit last week after a planned $3 billion convertible offering was withdrawn, pleasing equity holders who did not want to see their shares diluted but dismaying bondholders who had hoped to see some of the deal's proceeds go for debt paydown. There were also reports Friday that Sprint might look to sell its money-losing Nextel Communications Inc. operations, barely two years after acquiring the latter company.

WCI moves up

From deep in the distressed-debt precincts, a trader saw WCI Communities' 9 1/8% notes due 2012 up 3 points on the session at 38.

Another trader said the WCI bonds are "continuing to do better from its lows, even though they're trading flat" following last week's Chapter 11 filing by the Bonita Springs, Fla.-based homebuilder. He quoted the 9 1/8s at 40 bid, 41 offered.

"When they first declared bankruptcy, he said, the bonds had been trading around 30-31, but had moved up since then. "The smart money is saying that WCI can continue to go up - now they have time to work out their problems."

No flight for Petrohawk

Elsewhere, the news that Petrohawk Energy Corp. plans to sell 25 million shares of stock and use at least some of the proceeds to pay down credit facility debt hammered its NYSE-traded shares down by some 10%, as might be expected, but did not provide much of a lift for the Houston-based energy exploration and production company's bonds.

A trader said that while he heard that the bonds were quoted up, there really wasn't much upside. Its 7 7/8% notes due 2015 were 94.5 bid, 95.5 offered, "not that much higher" than where they had been a week ago. He said the 9 1/8% notes due 2013 were trading right around 101 bid, 101.5 offered, also "not much higher."

Gaming bonds off on Nevada, N.J. numbers

Casino operators were in most cases lower, after Nevada reported its June casino win figures and New Jersey reported the July results from Atlantic City. Each set of figures told the same distressing story - the "win" figures for most casinos [i.e. gaming revenue less the amounts paid out to winning players] continued to languish versus a year ago. Overall Nevada gaming revenues fell by 1.1%, including a 3% year-over-year decline at the casinos on the Las Vegas Strip. Breaking the latter figure down, revenues fell 6.6% at the 23 biggest casinos on the Strip.

In Atlantic City, a trader said, "everyone except the Borgata was down 5% or more," with the Trump Taj Mahal off about 20% year-over year.

He saw Harrah's Entertainment's 6½% notes due 2016 at 41 bid, 42.5 offered, down a point, although he said the sector was "not going crazy."

At another desk, a trader saw the Trump 8½% notes due 2015 trading at 46 bid, 47 offered, well down from recent levels. Yet another market source saw those bonds off a point on the session at about the 46.25 level, while Harrah's 61/2s were ½ point lower at 42.5.

However, not all of the gaming names were crapping out - Station Casinos Inc., helped by better revenue results from its locally oriented Las Vegas casinos, was up 2 points on the day, its 6 7/8% notes due 2016 firming to 47 bid. Borgata half-owner Boyd Gaming Corp. 7¾% notes due 2012 were better at 89.5 bid.

Caribbean Restaurants price talk emerges

In the primary market, price talk was heard Monday on Caribbean Restaurants' (B3/B) upcoming $149 million offering of four-year-senior secured second-lien notes, with a high yield market source indicating that the bonds are expected to price at 98, with a coupon of between 13% and 13¼%, for a yield of between 13.423% and 13.928%.

The deal, which went on the road last Monday, is expected to price around the middle of the week, the source said.

The Rule 144A /Regulation S offering, which is being sold without registration rights, will be brought to market by joint book-running managers Jeffries & Co, and Credit Suisse.

The company, based in Catano, Puerto Rico, is the exclusive Burger King franchisee in Puerto Rico. Proceeds will be used to refinance its term loan, which is to mature next year.

Apart from that, several primaryside sources said, things were even quieter than in the secondary. "It's pretty damn dead," one declared, "deader than [notorious 1930s gangster John] Dillinger," who was famously rendered quite dead in an FBI ambush.

Another source, seeing the day's dealings as "pretty quiet," opined that "the market's not fantastic, and so opportunistic [issuers] will probably wait until September."

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