Better junk tone on Wall Street surge, but less volume; Ford up on debt-cut response; Chemtura bounce continues

By Paul Deckelman and Paul A. Harris

New York, March 23 - Monday's explosive equity rally - fueled by investor hopes that the long-awaited Treasury plan for dealing with toxic assets, finally unveiled, will stabilize the battered banking system, once and for all -- brightened sentiment in Junkbondland. But traders reported that activity was less than they would have predicted, with some high yield denizens still cautiously sideline-sitting instead of jumping back in.

Ford Motor Co.'s bonds, and those of its Ford Motor Credit Co. auto-loan unit, were generally seen points better, helped by the Dearborn, Mich.-based carmaker's announcement that there had been strong investor response so far to its tender offer for term-loan debt, as well as the offer for some of Ford's outstanding bonds.

Chemtura Corp.'s bonds - which had fallen on Thursday in response to the chemical manufacturer's Chapter 11 filing, only to bounce off those post-filing lows on Friday - continued their rebound in Monday's session.

Lamar Media Corp.'s new five-year notes were seen little changed from the sharply higher levels to which they had risen after the company priced its bond offering on Friday at what some traders said was a way-too-cheap level. Meanwhile, Dole Food Co. Inc.'s recent bond issue - another deal thought to have priced at an unnecessarily cheap level - continued its more than week-long rise from its original price.

Kansas City Southern de Mexico plans $200 million

In primary news, Kansas City Southern de Mexico, SA is talking a $200 million offering of unsecured notes at the 13¾% area, according to a high-yield mutual fund manager.

Pricing is expected Tuesday.

Banc of America Securities will be involved.

The notes, which will be sold via Rule 144A, were disclosed in an 8-K document filed with the Securities and Exchange Commission on Monday by the company.

Proceeds will be used repay the company's credit facility in full.

On Dec. 16, 2008 Kansas City Southern Railway Co., the parent, priced a $190 million issue of 13% five-year senior unsecured notes (B2/BB-) at 88.405 to yield 16½%.

Morgan Stanley & Co. Inc. was left bookrunner for that deal. The joint bookrunner was Banc of America Securities LLC.

Junk buyers for Time Warner Cable

Meanwhile, high-yield accounts played the massively oversubscribed Time Warner Cable Inc. $3 billion two-part offering of high-grade senior notes deal (Baa2/BBB+/BBB), sources said.

The company priced $1 billion of five-year notes priced to yield Treasuries plus 595 basis points, and $2 billion of 10-year notes priced to yield Treasuries plus 570 bps, both on top of price talk.

Banc of America Securities, Citigroup, Deutsche Bank Securities, UBS Investment Bank and Wachovia Capital Markets led the deal.

Elsewhere Monday, there was no high-yield primary market activity.

However based upon the strength seen in the secondary market sources are expecting deals to surface later this week, including one or two possible transactions from the energy sector.

Market indicators move up

Back among the established issues, a trader saw the widely followed CDX High Yield 11 index of junk bond performance - which had retreated on Friday - "up nicely" in Monday's trading, quoting it at up a full 1 1/8 points to 69½ bid, 70 offered.

The KDP High Yield Daily Index meantime jumped 50 basis points to 52.21, while its yield tightened by 18 bps to 13.80%.

In the broader market, advancing issues widened their lead over decliners to a margin of almost two-to-one.

Overall market activity, measured by dollar-volume totals, declined by about 4% from the levels seen in Friday's session.

A trader said that he saw "certainly a better tone here, which I guess is pretty obvious with the Dow [Jones Industrial Average] up 500 points." To be precise, the benchmark equity market gauge jumped by 497.48 points, or 6.84%, to 7,775.86, on positive investor reaction to the long-awaited Treasury toxic-assets plan - just the fact that some plan, any plan, had finally been announced - as well as the unexpected 5.1% rise in February existing home sales announced by the National Association of Realtors. The broader market indexes were likewise solidly better, with the Standard & Poor's 500 up 7.08% on the day, and the Nasdaq composite index gained 6.76%.

However, even with the bulls charging around the equity precincts with reckless abandon, the trader opined that in high yield, it was "still not an extremely active day, which really surprised me, because you'd think that the accounts on the sidelines that were legitimately hesitant to jump in because every time they did, there would be more negative news coming out that would just knock us down," would be pushing back into the market. "This is looking like we're on pretty firm ground right now."

At another shop, a trader said that "the only thing that I've seen" actively moving "was Ford and some of the 'go-go' names, but away from that, we're not really participating in this equity rally, especially the off-the-run stuff."

He called the carmaker's bonds "up a good 1½ to 2 points from Friday's close on the tender and exchange offer news. "Away from that, it's been modest in terms of volume, but mostly just the 'go-go' stuff has been the stuff trading - the Aramarks, the Freeport McMoRans. Those are pretty much the main drivers in the market."

The first trader noted that even the issues that could usually be considered proxies for the overall junk market were not really actively traded on Monday. Community Health Systems Inc.'s $3 billion-plus issue of 8 7/8% notes due 2015, while up over a point on the session to 96, which he called "a nice move," only traded a relatively modest $14 million. First Data Corp.'s $2 billion-plus issue of 9 7/8% notes due 2015 gained a point to 56, on volume of $9 million, while Aramark Corp.'s $1.25 billion of 8½% notes due 2015 advanced to 91.5 bid from 89.75, "so all three barometers are up," but the latter bond had turnover of around $14 million, tops.

While the CDX index was up strongly, cash was lagging, a high-yield syndicate official noted, putting the gain as only ½ point.

The Street seems optimistic about the U.S. Government's plan to backstop the toxic assets on the balance sheets of the big brokers, the source added.

"The devil is in the details, but it sounds as though some of the buy-side accounts are going to participate, which is a good thing," the banker commented.

Ford and Credit cruise on debt-buyback progress

A solid winner on the day was Ford, and particularly, its Ford Motor Credit bonds, helped by the progress in its debt-reduction efforts which the company announced Monday.

A trader estimated those Ford and Ford Credit bonds higher by 1½ points pretty much across the board, while another also saw them better, with the parent company's benchmark 7.45% bonds due 2031 at 29.5, while noting that in "other places, they were quoted even higher." He saw "the shorter paper up a lot," with the Ford Credit 9¾% notes due 2010 up 3 points at 83 bid, 85 offered.

However, another trader called Ford's long bonds unchanged at 28.5 bid, 29.5 offered.

At another desk, a trader saw Ford Credit's 7 3/8% notes slated to come due on Oct. 28 trading at 91.75 bid, or a 23% yield to maturity, up nearly a full point from 90.875 on Friday, with $6 million traded.

A market source saw considerable activity in Ford Credit's 7¼% notes due 2011, pegging them up 3 points on the day at 69 bid, on volume of more than $12 million, while its 8 5/8% notes due 2010 rose by 2½ points to 82.5. Its 7% notes due 2013 tacked on 4 points to finish at 67, while its 12% notes due 2015 were also 4 point winners at 77.

Other Ford Credit bonds which the source saw firmer included the 7 7/8% notes due 2010 at 84 bid, on volume of more than $12 million, and the 8% notes due 2016 at 60.25 bid.

Ford's New York Stock Exchange-traded shares rose by 15 cents, or 5.45%, to end at their day's high level of $2.90 on slightly greater than usual volume of 45.3 million.

Ford firmed after the Number-Two domestic carmaker - which recently announced an ambitious plan to cut its more than $25 billion debt load by over $10 billion by giving holders cash for debt, or in the case of convertible debt, issuing company stock, at a big discount to face value - said that its tender offer for senior secured term loan debt was "oversubscribed" and will be expanded.

Ford Credit is doubling the amount cash it will make available to buy that term loan paper to $1 billion, letting it purchase as much as $2.2 billion principal amount of that loan debt - all of the term loan debt tendered - at a "clearing price" of 47 cents on the dollar set via a modified Dutch auction process. That's up from the originally planned $1.3 billion principal amount of term loan debt buyback.

Ford also said that its bondholders had tendered some $3.4 billion principal amount of the $4.2 billion of unsecured junk bonds the company is looking to take out. The early tender deadline, by which holders could get 30 cents on the dollar for their bonds, expired last Thursday, but the tender offer, now with a price of 27 cents on the dollar, will continue through April 3.

Ford is also offering to convert its 4¼% convertible debt due 2036 into company stock.

Ford envisions hundreds of millions of dollars of annual interest savings by sharply reducing its debt.

GM goes nowhere

While the Ford bonds in general and Ford credit in particular were moving higher, domestic arch-rival General Motors Corp.'s bonds - which had been solid upsiders during the early part of last week -- were spinning their wheels on Monday.

A trader saw the Detroit giant's benchmark 8 3/8% bonds due 2031 - "pretty much unchanged" at 17 bid, 19 offered, adding that "we didn't even see much trading in them."

Another trader saw them unchanged at 17.5 bid, 18.5 offered.

The GM bonds were seen bid as high as 18 last week in the aftermath of the company's assertion that it would not need to borrow $2 billion from the federal government to get through March, as it had originally projected.

Hertz drives upward

One of the more active issues on the day was Hertz Corp.'s 8 7/8% notes due 2014, with a trader seeing those bonds up a point at 51.5 bid, on volume of $21 million.

Another trader saw the Parsippany, N.J.-based rental-car company's paper "get as high as 54, then settle back down" to around 51 bid, 52 offered, which he saw as "up a couple of points" versus Friday. Later on, he said that the there was "more bidding now," with the paper going out close to that peak 54 bid level.

Hertz was said to be up on the news that the company was looking to amend its credit facility to allow for the use of up to $500 million in cash to repurchase term loan debt through tender offers.

Freeport continues as volume leader

While Hertz was active, a trader said that as has been the case on so many days over the last few months, the junk market's absolute volume leader was "none other than" Freeport-McMoRan Copper & Gold Inc. The Phoenix-based metals mining company's 8 3/8% notes due 2017 edged up to 92.5 bid from 92.125 on Friday, on volume of $23 million.

He also saw Freeport's 8¼% notes due 2015 firm more than a point to 94.75 bid on $17 million traded, although its floating-rate notes due 2015 dipped to 77.75 on volume of $10 million.

However, at another desk, a market source said the '17s, in moving up almost to 95 bid, were up about 3 points on the day.

Bad numbers shoot down Remington Arms

Elsewhere, a trader saw Remington Arms Co. Inc.'s 10½% notes due 2011 fall 4 points to 78.25 bid from 82.5 offered, on volume of $8 million.

There was no fresh news out about the Madison, N.C.-based firearms manufacturer, which last week reported a sharply wider $39.4 million loss in 2008 on sales of $591.1 million, versus year-earlier red ink of $1.5 million on sales of $489 million.

It attributed the 20.9% sales gain mostly to its acquisition of rival Marlin Firearms Co., as well as increased sales of Remington's R-15 and R-25 product lines.

However, the company had to record $47.4 million in non-cash impairment charges during the year, including $3.1 million associated with trademarks obtained during the Marlin acquisition.

Chemtura comeback continues

In the distressed-debt precincts, a trader said that Chemtura's bonds, which had fallen on Thursday on the company's Chapter 11 filing, but which were seen having come part of the way back on Friday, continued to improve on Monday.

He saw the Middlebury, Conn.-based company's most active issue, the 6 7/8% notes due 2016, jump to 40 bid from prior levels at 28.5, on $17 million traded.

The 7% notes slated to come due on July 15 - issued by a corporate ancestor, Great Lakes Chemical Corp. - were up 3 points on the day to 23.5 bid, on $2 million traded.

He also saw the 6 7/8% bonds due 2026 which had originally been issued by Witco, another Chemtura predecessor company, move up to 22.5 bid from 17 on Friday, on volume of $10 million.

Another market source saw the '16s at 39 bid, calling that a more than 10 point leap.

Ply Gem jump runs its course

A trader saw Ply Gem Industries Inc.'s 9% senior subordinated notes due 2012 at 34 bid, 35 offered, which he called "pretty much Friday's move," when the bonds had jumped more than a dozen points in late trading, from the low 20s, on the news that the Cary, N.C.-based building products company's equity sponsor will purchase a majority of the $360 million of outstanding notes.

He meantime saw the company's 11¾% notes due 2013 "better today" at 51 bid, 53 offered, which he called "up a few points," as the latter issue "caught up with the 9s."

At another desk, while the 9s were being quoted at that same 34 bid level, that was called down about 1½ points on the day from Friday's peak level.

Bowater dead in the water

A trader saw AbitibiBowater Inc.'s bonds pretty much unchanged in an 8.5-10.5 context, "about where the quotes have been," on "not much activity", unaffected by the news that the company's Bowater Inc. unit had extended until Wednesday evening the deadline on its exchange offers and solicitation of noteholder consents to proposed indenture changes, hoping to line up enough investor support.

Completion of those transactions is needed for Montreal-based Abitibi to proceed with its concurrent efforts to restructure the debt of its Abitibi-Consolidated unit, with both restructuring efforts seen as crucial to the debt-laden papermaker's survival.

'Nice' move for Nortel

Among other Canadian names, a trader said that Nortel Networks Ltd.'s bonds "moved up nicely," with the bankrupt Toronto-based telecommunications equipment maker's 10¾% notes due 2016 firming up to 20 bid, 21 offered, which he called at least a point better, "pretty significant [move] at that price." He said there was "not a lot of trading, but that was the better price."

New Lamar bonds hold gain

A trader saw the new Lamar Media 9¾% notes due 2014 "up a couple of points" at a 95.5-96-type level, which he said was up from late-Friday levels around 94-95. The 1½ point rise he saw was "probably in line with the on-the-run 'go-go' stuff like Aramark, up 1 to 11/2."

Another trader saw the bonds go as high as 95.75 bid, before ending at 95.5 bid, 96.5 offered.

The Baton Rouge, La.-based outdoor advertising company had priced an upsized $350 million of the bonds at 89.979 to yield 12½%, leading some traders to remark that the bonds had priced at ridiculously cheap levels, as evidenced by their explosive upturn when they were freed for secondary dealings. The Lamar bonds were seen going home on Friday at 95 bid, 95.5 offered.

New Dole bonds continue to move up

Another recent issue, Westlake Village Calif.-based fruit and vegetable processor Dole Food Co.'s 13 7/8% secured notes due 2014, were seen by a trader to have moved up to 96 bid, 97 offered.

The company priced an upsized $350 million of the bonds on March 13 at 92.883 to yield 16% - and they had been steadily climbing by anywhere from ¼ point to a full point in each of the sessions since then.

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