Visteon leads autos higher; Yellow Roadway prices split-rated deal; funds see $452 million outflow

By Paul Deckelman and Paul A. Harris

New York, May 19- Visteon Corp. bonds were smartly higher Thursday, with the Van Buren Township, Mich.-based automotive systems maker's notes given a turbo-boost by the news that it had hired a new president and chief operating officer, and reports that it was considering selling a number of factories using high-cost labor, as a means of bringing its labor costs lower.

The rise in Visteon saw other automotive supplier sector names going along for the ride.

Overall the high-yield market continued its rally on Thursday, with sources marking it half a point to one point higher on the session.

One source specified, however, that the buying was concentrated in high quality names, as well as on names in the automotive sector which may have been recently oversold.

Meanwhile the primary market spent the session dead in the water, with no issues pricing and no new deals announced. Terms were heard, however, on a split-rated acquisition financing from Yellow Roadway Corp. that was downsized and extensively restructured.

After trading had finished, market participants familiar with the fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that $452.19 million more left the junk funds in the week ended Wednesday than came into them. This stretched the funds' losing streak to 14 consecutive weeks, including the previous week's $404 million bleed. During that stretch, outflows have totaled about $6.55 billion, according to a Prospect News analysis of the AMG figures.

That makes up the bulk of the $7.474 billion outflow seen so far this year, which grew from a $7.022 billion cumulative outflow seen the week before, according to the Prospect News analysis. Outflows have now been seen in 17 weeks out of the 20 since the start of 2005, with just three weeks in which more money came into the funds than left them.

The figures exclude distributions and count only those funds that report on a weekly basis.

The fund flow numbers are considered a measure of junk market liquidity trends.

A new record for outflows

One reason for the primary market's dearth of news, according to one sell-side source, is that high-yield mutual funds have undergone what is now a record-breaking exodus of cash: 14 consecutive weekly outflows, topping the previous record of 13.

Late Thursday sources told Prospect News that AMG Data Services is reporting a $452 million outflow for the week to May 18.

One source tallied the year-to-date outflows at $7.5 billion, following Thursday's news.

Thursday's outflow trails the previous week's $405 million drain.

Notably, the source added, the outflow breaks the standing market record of 13 consecutive negative weeks of outflows that took place from Sept. 22, 2000 to Dec. 15, 2000.

However, the source added, what is significant about the current record-breaking string of outflows is not its duration, 14 weeks, but its magnitude overall.

"That run of outflows back in 2000 totaled about $2.5 billion," the source said. "This one is nearly triple that amount."

The official said that in spite of the high-yield market's rally during the past two sessions the new issue market is likely to remain a rocky one over the near term, and perhaps the intermediate term.

"There has been a big rally in the stock market this week, so you would expect some kind of pop in high yield," the sell-sider said.

"But I think the spread will continue to widen.

"And how can you price a new issue?" the official insisted. "People are just not putting the chips on the table."

When Prospect News objected, pointing to Wednesday's news that Seneca Gaming Corp., of western New York, priced a $200 million issue of senior notes (B1/BB-) at 96.50 to yield 7.914%, the sell-sider said that in the grand scheme of the new issue market the news has hardly any significance.

"That's a gaming company," the official pointed out. "It's one of the hottest sectors.

"Gaming companies were enjoying getting deals done with six handles a year ago. This one came at a spread of over 400 basis points, with a yield approaching 8%.

"When those deals can't get done you will know that there has been a total meltdown in high yield."

Yellow Roadway downsized, restructured

The sell-sider went on to say that turbulence in the high-yield primary could also be read in the terms of the split-rated Yellow Roadway Corp. deal that priced during Thursday's session.

The Overland Park, Kan., transportation services company priced a downsized, restructured $150 million issue of three-year senior floating-rate notes (Ba1/BBB-) at par to yield three-month Libor plus 137.5 basis points, via Credit Suisse First Boston.

The issue was downsized from $250 million. The tenor of the bond was decreased to three years from six years. And call protection was extended for the life of the bond from the original non-call-two structure.

A buy-side source told Prospect News on Tuesday that in the present market, where credit quality has become paramount, high-yield accounts would undoubtedly be taking a look at the Yellow Roadway split-rated deal.

Big LBO deals not imminent

With the new issue calendar nearly vacant, sources have been discussing several sizable committed financings which, they say, must eventually come to the market.

One such deal is Global Toys Acquisition LLC's approximately $6.6 billion LBO of Toys "R" Us Inc., which contains a $2 billion U.S. high-yield bridge facility.

Another deal that pops into such conversations is the SunGard Data Systems Inc. LBO, which is anticipated to involve $3 billion of senior and/or senior subordinated notes.

Sources also mention the Nieman Marcus Group Inc. $5.1 billion LBO, which is expected to produce junk bond issuance.

And on Thursday Prospect News learned that the financing of the Metals USA LBO deal also involves a bridge loan, which frequently leads to the issuance of bonds.

However one sell-side official said Thursday that none of the big LBO deals are expected to go forward in the immediate future.

"People are talking about July," the source said. "And with the way the market is in July, with nobody around, September might be more realistic."

As if to put the exclamation point on the uncertainties that now beset the high-yield new issue market, Chiquita Brands International Inc. entered into a revised commitment letter with regards to loan financing for the $855 million cash acquisition of the Fresh Express unit of Performance Food Group Co., according to an 8-K filed with the Securities and Exchange Commission Thursday.

The revised facility contains a $150 million one-year term loan secured by Fresh Express assets that would be available if the company is unable to issue $225 million of unsecured senior notes at the parent holding company level.

On March 18 Chiquita Brands International announced in a press release that it planned to sell $150 million of senior notes to back the acquisition.

Morgan Stanley was expected to run the books on the B3 rated notes - a deal which now appears, at least temporarily, to have been shifted to the bank loan market.

Junk stronger

For a second straight session, the secondary junk market rose strongly, traders said.

When asked what was better Thursday, a trader shot back "what wasn't better?

"You would have a tough time trying to find a bond that wasn't up today," he continued. "The whole market was stronger."

Visteon jumps

Of particular interest was Visteon, whose bonds got a boost from Wednesday's announcement that Donald Stebbins is coming aboard as president and COO.

Visteon "was where the big action was," the trader said, quoting the company's 7.95% notes scheduled to mature on Aug. 1 at 97.5 bid, 98.5 offered, up from 96 bid, 97 offered. He also saw its 8¼% notes due 2010 take "quite a jump" up to 78 bid, 79 offered from 71.5 bid, 72.5 offered earlier, while its 7% notes due 2014 rose to 72.5 bid, 73.5 offered from 67 bid, 68 offered previously.

Visteon's New York Stock Exchange-traded shares jumped $1.24 (32.46%) to $5.06, on volume of nine million shares, about five times the normal activity level.

Market players were particularly impressed by the fact that incoming president Stebbins leaves behind a secure position as president and COO of Lear Corp.'s overseas operation to come to Visteon, which has had its troubles, in tandem with those of former corporate parent Ford Motor Co.

Lear moved out of junkbondland and up to investment-grade respectability at Baa3/BBB- in 2003 and 2004, and the 47-year-old Stebbins was theoretically in line to rise still higher at the relatively stable Lear; for him to leave such a nice sinecure to come to the considerably less stable Visteon (B3/B-) could be interpreted as a vote of confidence in the latter company's prospects, even though they might not look so very hot at the moment.

Those prospects seemed a little better Thursday on reports that Visteon - which has been in talks with former parent Ford on restructuring itself to get on a better permanent economic footing, especially in the area of labor costs - may sell as many as 15 U.S. factories to shed union employees who cost Visteon $60 an hour in wages and benefits.

One report said that such a deal - which would sell those plants to suppliers that pay lower wages - could be announced before June 1. Many of the 17,700 Ford employees who were assigned to work at those Visteon factories could be brought back to Ford itself, or might be offered early retirements.

Ford higher as Fitch cuts one notch

Visteon's former parent, meanwhile, saw its bonds downgraded by Fitch Ratings Thursday - but the agency kept Ford at an investment-grade level, dropping its ratings just one notch to BBB from BBB+ previously. Combined with Moody's Investors Service's recent decision to also keep Ford investment grade - Standard & Poor's had previously junked it - that gives enough of a high-grade fig leaf to the Number-Two carmaker to allow many investment grade accounts to continue holding its bonds rather than having to dump them, and the good news sent Ford up Thursday. Its 7.45% notes due 2031 moved up to 78.75 bid, 79.75 offered, up around two points on the day.

Collins & Aikman gains

Other automotive names traveling in the upside lane on Thursday included the bankrupt Collins & Aikman Products Co., whose 10¾% senior notes due 2011 pushed as high as 45.5 bid from around 43.5 previously a market source said. He also saw the Troy, Mich.-based auto interior components maker's 12 7/8% subordinated notes due 2012 firm a little, to eight cents on the dollar, from seven cents previously.

Exide up

Even Exide Technologies - whose bonds got clobbered Tuesday when the Lawrenceville, N.J.-based battery maker revealed that it will likely breach its credit facility EBITDA and leverage ratio covenants, and which were pretty much unchanged at those lower levels on Wednesday - managed to get better Thursday, its 10½% notes due 2013 moving up to 74.5 bid from 72.75 on Wednesday.

Dura Operating Corp.'s 9% notes due 2009 were unchanged at 61 bid, but the Rochester Hills, Minn.-based auto systems maker's 8 5/8% notes due 2012 were seen a point better at 87.

Moody's downgrade hits Delphi

Delphi Corp.'s bonds were also higher for much of the day, in line with the generally stronger auto sector; a source saw the Troy, Mich.-based automotive electronics manufacturer's 6½% notes due 2009 go up to 80 bid from 76.5 earlier, its 6.55% notes due 2006 get as good as 96.5 bid from 94.5 offered and its 7 1/8% notes due 2029 rise to 70.5 bid from 68. However, that didn't last.

A trader noted that after Moody's bopped Delphi with a three-notch ratings downgrade to B2 from Ba2 previously, "it knocked them right back down." He had seen Delphi's 6½% notes due 2013 get as good as 75.5 bid before the news, but then fall back to 71.5 bid, 72.5 offered, "net-net unchanged on the day."

Moody's cited the potential for more losses, as well as production cuts at General Motors Corp. - Delphi's former corporate parent and still its biggest single customer.

Tekni-Plex up despite ratings cut

Even outside the auto sphere, "a lot of stuff moved upward today," a market source said - even Tekni-Plex Inc., which improved despite a Moody's downgrade of the Somerville, N.J.-based packaging maker's senior bonds to Caa2 from Caa1 and its subordinated notes to Ca from Caa2, citing "continued pressure on profitability as concern about soft volume, high operating costs, and the challenging pricing environment persist."

Still, its 12¾% subs due 2010 rose slightly to 66.25 bid from 66, while its 8¾% senior notes due 2013 ended at 85.5, up 1½ points on the day.

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