Delphi falls on Appaloosa pullout but GM firmer; home builders gain on mortgage bailout plan

By Paul Deckelman and Paul A. Harris

New York, April 4 - The virtually last-minute news that an investor group led by Appaloosa Management LP was pulling out from a $2.55 billion equity funding commitment it had made to Delphi Corp., just as the latter company was about to triumphantly emerge from a long bankruptcy workout, pushed the Troy Mich.-based parts maker's bonds down several points in busy dealings Friday, traders said. However, the news did not have a similar effect on the bonds of Delphi's former corporate parent, General Motors Corp., which is playing a major role in its restructuring; if anything, those bonds were up.

Homebuilding names were seen up solidly, as a plan for a federal bailout of people hurt by the subprime mortgage crisis - which also includes some help for hard-hit sectors of the economy like the builders - continued to make its way through Congress.

Overall, the junk market seemed better, though on lighter volume than the session before, possibly helped by a sense of relief that the equity market was able to shrug off worse-than-expected job-creation figures for March.

E*Trade Financial Corp.'s bonds were lower, in very busy trading; at the same time, Freescale Semiconductor's issues were notably better.

On the primary front, no issues priced, although high yield syndicate sources indicated that underwriters were expected to build a book for what's being described as "a significant amount" of Alltel Communications bonds during the upcoming week.

Market indicators head higher

A trader saw the widely followed CDX index of junk bond performance up ¼ point at 95 bid, 95½ offered. Meanwhile, the KDP High Yield Daily Index rose by 0.32 to end at 74.28, while its yield narrowed by 10 basis points to 9.57%.

In the broader market, advancing issues led decliners by a better-than two-to-one margin. Overall activity, reflected in dollar volumes, fell by 17.5% from Thursday's levels.

"It was a slow day today," said one trader, while another agreed that the market "seemed very quiet. People just seemed relieved that the stocks didn't collapse from the negative jobs report" released Friday morning by the Labor Department, which said that the closely watched non-farm payrolls number fell by 80,000 in March - about 60% worse than the 50,000 jobs decline that economists on average had expected. It was not only the third consecutive monthly decline, but was also the biggest fall since 2003. As if that weren't bad enough, January's reading was revised lower to a 76,000 job decline - more than three times the size of the 23,000 jobs loss originally reported, and February's reading was revised lower, also to a 76,000 jobs loss, from a 63,000 jobs drop originally reported.

And the unemployment rate at the same time pushed upward to 5.1% from 4.8%, passing expectations of a rate of 5%.

But because the numbers, bad as they were are still nowhere near the recession levels seen early in the decade, when the jobless rate hit 6.3% and payrolls fell by as much as 325,000, Wall Street pulled out of its initial tailspin, which saw the bellwether Dow Jones Industrial Average at one point plunge nearly 100 points, before finally finishing off 16.61 points, or 0.13%, at 12,609.42. Broader market indexes, on the other hand, ended higher.

Once that stock debacle did not happen, the bond trader continued, "a lot of people just let out a big sign of relief and left early for the weekend."

Delphi down on Appaloosa pullout

One of the most closely watched and oft-discussed names on the day was Delphi, whose plans of emerging from Chapter 11 - where it had been since October 2005 - were spoiled when an investor group led by Appaloosa Management repudiated its previously agreed upon $2.55 billion cash infusion for Delphi. The hedge fund claimed that an agreement announced last year under which GM - Delphi's former corporate parent and still-biggest customer - would kick in $2.8 billion in loans to Delphi's $6.1 billion of exit financing violated the terms of the agreement with the Appaloosa group, which also included Merrill Lynch & Co. Inc., Harbinger Capital, Goldman Sachs Group Inc., UBS AG and Pardus Capital. They said that the terms of the GM investment gave the carmaker too big a say in Delphi's affairs, and would also make it harder for the company to pursue other, non-GM business.

That having been said, Appaloosa said it was willing to discuss possible alternative deals and could still invest in Delphi under different terms.

A trader saw Delphi's bonds down about 3 points following the withdrawal of the Appaloosa-led investors' group. He quoted the 6.55% notes that were to have come due in 2006 at 33.5 bid, 35.5 offered.

Another trader said that the 6.55s were off 2 points at 33 bid, 35 offered, and said "all of their bonds are trading about the same."

Yet another trader said the 6.55s were "definitely lower" at 34 bid, 34.5 offered, down from 37 bid, 37.5 offered on Thursday. He said an early attempt to trade the bonds at around the 37 fizzled and died.

He saw Delphi's 7 1/8% notes due 2029 "all over the place" before moving to 34.5 bid, 36 offered, down from levels as high as 39 early on, where it was trading before the Appaloosa news became widely disseminated.

"People were using the [Appaloosa] news [as an excuse] to get out of the bonds," he said. The 6½% notes due 2013 fell to 35 bid, down 2 points from Thursday.

Movement was "pretty consistent" across the whole debt structure, he observed, with bonds going from the high 30s to the mid-30s, post news."

Another market source tabbed the 6.55s down 4 points at 34.5 bid.

GM bonds not affected by pullout

But the Delphi news didn't seem to have a negative impact on General Motors Corp., despite news stories suggesting that the Detroit giant - trying to turn its own fortunes around amid sagging domestic vehicle sales - might have to kick in more money to pull its problem child out of bankruptcy and would also be delayed in realizing anticipated cost-savings on its deal with Delphi. Its 8 3/8% bonds due 2033 were seen by a trader up 1¼ points to 72 bid, 73 offered.

Another trader saw the benchmark bonds trading between 73 and 76, although most of the higher trades were earlier in the day before the news of the Appaloosa pullout really spread around the market. However, even then, he saw the bonds ending higher, at 73.125, which he called well up from recent levels around 72 bid, 72.5 offered at which the bonds had traded. He said that the issue was "very active."

Another trader saw the bonds up ½ point at 73.5 bid, 74.5 offered.

A market source, however, saw the 8 3/8s essentially unchanged at 73, though in heavy trading, and saw its 49%-owned financing arm, GMAC LLC's 8% notes due 2031 up a point in busy dealings at 75.5.

Homebuilders seen better

Elsewhere, homebuilder bonds were seen improved almost across the board, with Congress hammering out a foreclosure bailout package that is expected to provide some aid for the builders and mortgage providers. In fact, some critics of the $15 billion Foreclosure Prevention Act of 2008 say it is too generous to the companies with its provision for four years of tax-loss carry-forward coverage, a tax break estimated to be worth $6 billion.

A trader said that "almost all of the homebuilders were up" on the prospect of major congressional help will help for the beleaguered industry.

He saw Beazer Homes USA Inc.'s 8 3/8% notes due 2012 up 2 points at 79 bid, 81 offered, saw Hovnanian Enterprises Inc.'s 8 7/8% notes due 2012 better by 3 points at 62 bid, 64 offered, and saw Standard Pacific Corp.'s 7% notes due 2015 a point better at 73 bids, 75 offered. William Lyon Homes' 10 ¾% notes due 2013 were up 4 points at 62 bid, 65 offered.

"Even though the aid will be coming to individuals, homebuilders and developers will get some of the assistance," he said. "Help is coming."

Another trader saw Beazer's 8 5/8% notes due 2011 up a point to 81 bid, 83 offered, while Standard Pacific's 7s were 2 points better at 75 bid, 77 offered. Hovnanian's 6 3/8% notes due 2014 were unchanged at 71 bid, 72 offered.

E*Trade seen off

E*Trade Financial - which has been hard-hit by the ongoing credit crunch, as it offers mortgages along with other financial products through its online brokerage business - was seen lower, in very active trading, although there was no immediate news seen about the New York-based company.

A market source saw its 7 7/8% notes due 2015 down 1¼ points at 76.25, but could offer no explanation for either the high activity in the credit, or the fall.

High-tech names improve

On the other hand, several participants noted the prominence of high-tech names among the gainers, although no one had seen any specific explanation.

A trader noted that Amkor Technology Inc.'s 7¾% notes due 2013 were up a point at 93.5 bid, 94.5 offered. The Chandler, Ariz.-based semiconductor testing and packing services provider's notes were seen by another source up a point at 94.

The source also saw Freescale Semiconductor's 8 7/8% notes due 2014 up a point at 81.5.

Another market source said those bonds, and the company's 9 1/8% notes due 2014, were among the most actively traded issues on the day, with the former issue seen up a point at 81.5, while the latter bond was seen ½ point better at 74.5 bid.

Sentiment improves

The gain in the CDX high yield index Friday capped a week-long rally in junk, a syndicate source noted.

This was in spite of a mixed day in the stock market trailing news that the U.S. economy shed 80,000 jobs in March, the most in five years, while the job loss totals of the preceding two months were revised upward, and the unemployment rate climbed to 5.1%.

"The market feels pretty good," an investment banker said on Friday morning.

"Ipalco came cheap and traded up," the source added, referring to Ipalco Enterprises, Inc.'s $400 million issue of 7¼% senior secured notes due 2016 (Ba1/BB/BBB-) which priced Wednesday at 98.526 to yield 7½%.

"People are gaining confidence in the primary market when it comes to these higher quality deals," the investment banker said.

"The Steel Dynamics concession to the market was 50 basis points," the source added, making reference to Steel Dynamics, Inc.'s upsized $375 million issue of senior notes due 2016 (Ba2/BB+), which priced on March 27 at par to yield 7¾% in the first all-high yield same-day drive-by deal to clear the market in nearly four months.

"The market concession in high yield is now similar to that of investment-grade deals, although some of the investment-grade deals are coming tighter now," the banker added.

"Right now every underwriter is out there pitching every corporate client that they bank - especially if they're double-B or higher."

CCS launches $312 million

Calgary-based waste management company CCS Inc. will begin a roadshow on Wednesday for its $312 million offering of senior unsecured notes due Nov. 15, 2015.

The roadshow is scheduled to conclude on April 23, and the notes are expected to price after that.

Goldman Sachs & Co. and Deutsche Bank Securities are joint bookrunners.

Proceeds will be used to partially refinance the $612 million bridge loan related to the LBO of the company.

The overhang

The latter part of the March-April crossover week produced a flurry of news on the $50 billion to $60 billion high-yield bond portion of the LBO backlog.

Underwriters will seek to build an order book for a significant amount of the Alltel Communications Inc./Alltel Communications Finance, Inc. $5.2 billion of senior unsecured cash-pay notes during the April 7 week, according to sources on both the buy-side and the sell-side.

Meanwhile an informed source said that all of the $400 million of high yield risk related to the Solutia Inc. Chapter 11 exit financing has been distributed.

In addition sources say that underwriters have been purposefully marketing the First Data Corp. (FDC) hung high-yield bridge (see related story in this issue).

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