WaMu relatively active, though off peaks, in quiet pre-holiday session; GMAC gets bank status

By Paul Deckelman and Paul A. Harris

New York, December 24 - High yield market participants packed up and headed home for the holidays well before Wednesday's official 2 p.m. ET closing time, leaving not much to show for it; as could be expected, traders complained that it was one of the slowest sessions of the year, if not THE slowest.

"Most of the lights [on the phones] when you called accounts were red - which means they were not in," was how one put it. "There was just nothing going on - I mean nothing."

One of the few names seen actually trading on any size - and even that was on thin pre-holiday volume - was Washington Mutual Inc., whose bonds had also been among the bigger movers in Tuesday's fairly quiet session. Out of that same financial sector, Finova Group Inc.'s bonds were perhaps the busiest junk issue and were quoted up several points on no news, although they continue to languish in the single-digits.

GMAC LLC's 2011 bonds were also among the movers, relatively speaking, ahead of Friday's expiration deadline for its $38 billion debt-exchange offer. Late in the day - well after both the fixed-income and equity markets had closed for Christmas Eve - GMAC announced that the Federal Reserve had approved its application to become a commercial bank - even though GMAC had not fulfilled the condition of having 75% of the bonds named in the offer tendered by their holders.

Primaryside activity was meanwhile seen as non-existent.

Market indicators keep rising

Although volume was severely restrained, the widely followed CDX High Yield 11 index of junk bond performance, which rose ½ point on Tuesday as it continued a solid recent winning streak, was up again on Wednesday, with a market source quoting it at 78 bid, 78½ offered, up another 3/8 point on the session. The KDP High Yield Daily Index meantime jumped 39 basis points to 50.34%.

In the broader market, advancing issues kept their lead over decliners, beating them by a four-to-three margin. Overall market activity, reflected in dollar volumes, was less than one-tenth the pace seen in Tuesday's session.

"There was nothing [going on] to even talk about," one trader said. "It was ridiculous. Things were "just drifting around."

The session was "a big zero" in the eyes of another trader, while a third opined that "it was very, very quiet; we've only done a couple of trades all day."

Washington Mutual moves around

As was the case on Tuesday, Washington Mutual's bonds remained relatively busy in an otherwise extremely dull session; however, unlike Tuesday's session, which saw the failed Seattle-based thrift operator's bonds rise by several points and retain those gains, pretty much across the board, Wednesday saw a few trades, some respectably sized, at higher levels, although the bonds later fell back from those peaks.

A market source saw its 4% senior holding company notes coming due on Jan. 15 push as high as 66 bid, although the bonds were slightly below that zenith in late trading, but they were still up from the levels around 64 at which it had traded on Tuesday. However, the bonds remain well below their most recent round-lot levels, in a 67-68ish context.

The most active WaMu bond of the day, in relative terms, was its 4 5/8% subordinated holding company notes due 2014, with a trader seeing about $3 million of the bonds changing hands. They had moved as high as 24 bid during the session, but later were seen around 21, actually down about a point on the day.

Also relatively active, with about $2 million bonds traded, was the company's Washington Mutual Finance unit's 6 7/8% notes due 2011, which soared briefly to the exalted 98 mark, though only on one trade, before backing down to around 92 bid, down 2 points.

Traders said that WaMu is being pushed up by investor speculation about the valuation of the company's remaining assets other than its far-flung branch network, which was seized by federal regulators back in the fall and sold to J.P. Morgan Chase & Co. WaMu minus the branch network is currently restructuring under Chapter 11. Recent filings with the U.S. Bankruptcy Court in Wilmington, Del., which is overseeing the case, show thousands of claims filed by shareholders, businesses and individuals across the country totaling more than $7.8 billion, against listed assets of about $4.5 billion.

Finova firmer in relatively busy dealings

Also among the financial names, Finova Group's 7½% notes coming due on Nov. 15, 2009 were the most actively traded junk issue Wednesday, a trader said, with nearly $7 million changing hands. The Scottsdale, Ariz.-based commercial lender's bonds - which had recently been trading around a nickel on the dollar - were seen having jumped to about 8 bid Wednesday and having stayed there. Activity included several large-block trades.

There was no fresh news out on the company that might explain the price rise.

GMAC gyrations continue, but bank status granted

GMAC's bonds were seen moving around - although activity, as with the rest of the junk market, was constrained by the shortened hours and a dearth of participants actually wishing to do anything. Well after trading had wound down, GMAC announced that it had gotten the green light from the Federal Reserve to become a bank holding company, enabling the Detroit-based automotive and residential lender to tap into financial industry bailout programs recently set up by the federal government.

Besides helping GMAC itself, that is seen as a positive development for its former corporate parent and still part-owner, General Motors Corp., since GMAC provides much of the financing that local GM dealers then extend to car buyers and its loss would worsen the ailing auto giant's situation even further.

The Fed OK came even though GMAC had not fulfilled capital requirements which the central bank had previously laid down, including the successful exchange of three-quarters of the outstanding bond debt of GMAC and its wholly owned Residential Capital LLC mortgage finance company for a package of new secured debt securities, preferred stock and cash.

Even so, GMAC said the ongoing exchange offer - first announced in November and since extended several times as the company tried to convince bondholders to get with the program - will continue. It is currently scheduled to expire at 11:59 p.m. ET on Friday.

Hours before the news from the Fed, junk market participants saw GMAC's 6 7/8% notes due 2011 remaining the most actively traded of its bonds, the same as in recent days, with about $2 billion changing hands. They were quoted by one market participant as having slid to around the 36 level at the close from 42 on Tuesday, although there was no fresh negative news out about the company or the ongoing debt exchange offer.

Another - looking only at round-lot trading - quoted the bonds actually up 2 points, around the 45 level.

Its 8% bonds due 2031 were seen at 32 bid, down about a point or so from recent levels, and its 5.85% notes coming due on Jan. 14 were a little below their recent levels around 90,

However, at another desk, the company's 6 7/8% notes due 2012 were seen having bounced back - and then some - following a 2 point loss on Tuesday; the bonds were pegged at 42 bid, up 3 points on the session.

ResCap's 8 7/8% notes due 2015 were meantime seen up a point at 15 bid.

The Fed decision granting bank holding company status to GMAC - thus allowing it to apply for funding under the Treasury's $700 billion Troubled Asset Relief Program bank bailout structure - would seem to render moot the ultimate success or failure of GMAC's pending exchange offer for $38 billion of bonds issued by GMAC and its ResCap. Prior to Wednesday's Fed move, successful completion of the offer to exchange the new debt, preferred and cash for the existing GMAC and ResCap bonds at a steep discount to the old bonds' face value was considered a virtual necessity for GMAC's being able to raise sufficient capital - $30 billion of assets - to allow it to convert to a commercial bank holding company and access TARP. Analysts had warned that a failure to do so would likely force GMAC into bankruptcy, perhaps taking 49%-owner GM with it.

The offer's early-delivery deadline was 5 p.m. ET last Friday; that milestone - by which anyone who was expected to tender their bonds would have done so, because of the slightly more favorable terms on early delivery - came and went without comment from the company, and without GMAC having reached the desired tender level of 75% of the outstanding bonds. GMAC, struggling to reach that threshold, has extended the offer's deadlines several times, and on one occasion, sweetened the terms, which boosted bondholder participation - but not by enough to complete the offer. It said on Dec. 18 that at last count, holders had tendered about $16.9 billion principal amount, or 58%, of the more than $29 billion of GMAC bonds covered by the offer, as well as $3.5 billion, or about 38%, of the approximately $9 billion of ResCap bonds, still short of its goal.

Several major bondholders - notably, Pacific Investment Management Co., operator of the world's biggest bond fund - balked at going along with even the sweetened terms. Pimco's chief investment officer, Bill Gross, said that GMAC and its 51% owner, Cerberus Capital Management LP, are trying to high-pressure the bondholders into locking in losses averaging nearly 50% by setting an arbitrary end-of-year deadline for completing the exchange and the commercial bank conversion and raising the specter of possible bankruptcy if these things are not accomplished in that timeframe. He noted that GMAC, unlike GM, is not facing an imminent deadline for running out of money, and wondered in a recent New York Times interview what the "desperate rush" to get the deal done on the current terms is.

As part of the agreement that will grant bank status to GMAC, GM agreed to reduce its nearly-half interest in the company to no more than 10%, while principal owner Cerberus will distribute equity interests to investors in order to lower its control to no more than 14.9% of GMAC's voting shares.

A trader meanwhile said that GM's benchmark 8 3/8% bonds due 2033 were unchanged at 14 bid, 16 offered, while GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were likewise unchanged at 23 bid, 26 offered.

However, at another desk, the GM long bonds were seen having pushed as high as 17 bid in a series of smallish trades late in the abbreviated session. On a round-lot basis, the bonds were seen steady versus Tuesday at 16.

Ford financing arm Ford Motor Credit Co.'s bonds were seen mixed on the day with its 7 3/8% notes coming due next October down 5 points to the 70 level, while its 7% notes due 2013 gained more than 2 points to 51 bid.

Tender termination leaves US Freightways unmoved

A trader who saw a complete lack of activity in the market said that there was not even any trading in US Freightways Corp.'s 8½% notes due 2010, this despite the news that parent company YRC Worldwide Inc. cancelled its pending tender offer for those bonds and two issues of convertible debt.

"There are really no trades in the bonds, even though the stock is off" on the news. "Their rating got cut by Moody's [to Caa1 from B1 on Dec. 5] and they're in talks with their lenders to modify credit terms. The bonds - if they were trading - would be down, but they are not, because there are just no trades."

The 8½% notes due 2010 were most recently seen "around the mid-50s," the trader said, although another market source indicated that they had come down from such levels over the last few days, to around a 50-51 context, on light volume. The trader said that back in early November, YRC took its other junk issue, the 8¼% notes maturing Dec. 1, "out early," drawing on its credit facility to redeem the $225 million of outstanding bonds "to avoid getting themselves in more trouble."

On Nov. 25, Overland Park, Kan.-based YRC - the worldwide truck transportation company formerly known as Yellow Roadway Corp. - announced the tender offer for the $150 million of 81/2s, as well as several issues of convertible notes issued by US Freightways unit, now known as YRC Regional Transportation Inc.

It said it would pay a maximum of $100 million cash for the bonds, an amount later increased to $150 million, and set up a priority ranking for the five series of notes, having a total outstanding principal amount of $536.837 million. Under the rules of the tender offer, all tendered notes from a higher category had to be accepted for purchase by the company before any notes from a lower category could be. The 8½% notes were at the bottom of the ladder - the bonds least likely to be accepted for purchase - with a cash price of $620 per $1,000 principal amount accepted. The offer was scheduled to expire at midnight ET on Tuesday night, but the company said Wednesday morning that it was cancelling the buyback offer because its union workers have not yet ratified a wage reduction provision of its master contract, a condition of the tender offer.

Instead, YRC said that it is it is in discussions with its banking group to modify certain terms of its credit facilities, including changes to its leverage ratio. It expects to wrap up those talks in late January and anticipates remaining in compliance with its credit facility covenants as of year-end.

Harrah's, Sprint seen lower

Elsewhere, Harrah's Entertainment Inc.'s bonds lost some ground during the Christmas Eve session, though market sources noted that activity in the name was virtually non-existent.

One trader there was "not trading really at all" on the back of a downgrade from Standard & Poor's. But another source saw the bonds drifting lower 1 to 2 points, its 6½% notes due 2016 at 14 bid, 14.5 offered and its 5¾% notes due 2017 at 14.5 bid, 15 offered.

S&P cut the Las Vegas-based gaming giant's corporate credit rating to SD from CC, though it raised the newest bond issues to B from B-. S&P cited the company's recent distressed tender offer as an explanation for both moves.

Meanwhile, Sprint Nextel Corp.'s debt - at least one issue of it - was called one of the most active of the day, though only about $4 million of the 6 7/8% notes due 2013 traded, sources reported.

Traders pegged the bonds between 42 and 42.5, calling it down 1 to 1½ points on the day.

Sprint's bonds had also been considered one of the more active issues on Tuesday, though there was no news to explain the surge.

Chesapeake off from Tuesday gains

Another downsider was Chesapeake Energy Corp., whose bonds had firmed on Tuesday amid surging natural gas prices; however, the Oklahoma City-based Number-Two independent U.S. natural gas producer's 6¼% notes due 2018 were seen having given back about half those gains, retreating over 2 points to about the 70 bid level.

That retrenchment came even though gas prices continued to rise, with the January-delivery contract up another 17.3 cents, or 3%, on the New York Mercantile Exchange, settling at $5.91 per million Btu.

Also heading lower was natural gas transportation and storage operator Sabine Pass LNG, whose 7½% notes due 2016 eased by ½ point to 71 bid.

Bear Creek gets clawed - or maybe not

Medford, Ore.-based direct-mail and retail gift distributor Bear Creek Corp.'s 9% notes due 2013 were seen by a market source having fallen to levels in the lower 30s from prior levels around 45 bid, on volume of some $3 million, making it one of the more active issues in the pre-holiday session.

However, another source noted that the bonds had been trading in that lower-30s context for awhile, but had spiked up into the 40s on a couple of smallish outlier trades earlier in the week - so Wednesday's move represented more of a return to normalcy rather than a dramatic deterioration.

There was no fresh news out on the company, which mails out gift baskets of fancy fruits and other delicacies under the "Harry and David" brand and which also sells those wares though a string of retail gift outlets bearing the same name.

Interface terminates exchange

There was no activity in the primary market, the source said.

The Wednesday session closed with no deals in the market, and no active forward calendar carrying into 2009.

Atlanta floor coverings firm, Interface, Inc. announced in a Wednesday press release that it has terminated its exchange offer and consent solicitation for $152.59 million of 10 3/8% senior notes due 2010, which it commenced on Nov. 25.

Interface was offering $306 in cash and $700 principal amount of new 13½% senior notes due 2012 for each $1,000 amount of the 10 3/8% notes.

The company did not disclose the reason that it terminated the deal.

Interface follows Station Casinos, Inc., which terminated its exchange offer for five series of notes on Dec. 15. In what had been characterized as an "opportunistic" restructuring exchange deal by market sources, Station Casinos was attempting to swap bondholders into 10% term loans at $0.54 on the dollar for the senior notes and $0.20 on the dollar for the subordinated notes.

Elsewhere Realogy Corp. terminated its exchange on Dec. 18 after a Delaware judge declared that the deal violated an indenture in Realogy's senior toggle notes due 2014, finding in favor of toggle notes holders including Carl Icahn.

Still pending, however, is the massive GMAC LLC/Residential Capital, LLC (ResCap) $38 billion exchange deal for 33 securities.

GMAC is attempting to use the exchange deal to create $30 billion of cash on its balance sheet so that the Federal Reserve will grant the auto lender bank holding company status.

On Dec. 18, GMAC said it received tenders for $16.9 billion, or 58%, of GMAC notes and $3.5 billion, or 38%, of ResCap notes.

In order to be granted bank holding company status - and, some say, to survive as a company - GMAC needs to persuade 75% of its bondholders to participate in the exchange.

The offer will expire at 11:59 p.m. ET on Dec. 26.

However late on Wednesday, the Federal Reserve announced it had approved the request by GMAC LLC and IB Finance Holding Co., LLC to become bank holding companies. The Fed said it "has considered GMAC's successful efforts to raise additional capital and that, as a result, GMAC will be well capitalized on completion of the proposal, as well as commitments GMAC has made to maintain its capital at a high level for a specified time period."

The Fed also said it was acting quickly because it believe "emergency conditions" existed.

Stephanie N. Rotondo contributed to this report

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