GM long bond up 1¼ in trading; CDX up 3/8; market watching First Data $15 billion bank debt launch

By Paul A. Harris

St. Louis, Sept. 14 - With the Rosh Hashanah holiday thinning the ranks in the capital markets, Friday's high yield session was extremely quiet, according to sources.

A hedge fund manager, who spotted the high yield tracking CDX index closing at 95 5/8 bid, 95 7/8 offered, up 3/8 on the day, said that positive news on General Motors Corp. sent its long maturity bonds up a point and a quarter on the session.

"Spreads have been coming in pretty significantly," said the source, who added that the market is anticipating that the Federal Reserve Bank's Federal Open Market Committee is going to step in with assistance to the ailing credit markets on Tuesday by cutting the Fed Funds rate.

This source expects the Fed to trim its benchmark lending rate by 50 basis points.

Elsewhere a trader said that activity was extremely light and situational on Friday.

There was no news in the primary market.

Nevertheless the junk market was buzzing with the news that the First Data Corp. $15 billion bank deal, which has been the focus of junk bond watchers since early August due to the widespread belief that it will provide an indicator as to whether the massive forward calendar of LBO deals can get done, was formally launched.

First Data launches loans

The Friday session, nearly bereft of news from the high yield bond market, did see a development on a bank deal that junk observers believe will indicate how the massive forward calendar of LBO deals expected to price through the remainder of 2007 and the first half of 2008 will fare.

First Data will hold a bank meeting on Monday afternoon for its $15 billion credit facility (Ba3/BB-).

The tranches include a $2 billion six-year revolver, a non-callable $5 billion seven-year senior secured term loan, a callable $5 billion seven-year term (including $1 billion equivalent euro-denominated sub-tranche) and a $3 billion seven-year senior secured term loan, non-callable for 3¼ years.

All tranches are talked at a price of 96.00.

Credit Suisse, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, Lehman Brothers and Merrill Lynch are the bookrunners.

Proceeds will be used to help fund the LBO by Kohlberg Kravis Roberts & Co. (KKR)

The deal includes a senior leverage covenant, which, a concession, market sources said, which the bookrunners won in late negotiations with sponsor KKR.

A bank loan investor told Prospect News on Friday that the inclusion of the leverage test is meaningful, especially if the CLO market should regenerate over the next four months or six months, because CLOs are not expected to return with much enthusiasm for covenant-lite loans.

First Data bonds - maybe

When the First Data LBO financing details emerged in May, well before the sell off in the credit markets got underway, it included $8 billion of new high yield bond issuance to be led by Citigroup.

With the high yield primary market all but totally locked down, and the investment banks laboring to offload what is believed to be $300 billion-plus of risk overhang resulting from unplaced bonds and unsyndicated leveraged loans, high yield market watchers have been skeptical that a First Data bond deal is going to show up anytime soon.

However a buy-sider summed up the prevalent sentiment on Friday: if the banks manage to syndicate a respectable amount of the First Data bank loan it should render a reasonably clear indication as to where the bonds would have to be priced in order for a potential junk deal to get done.

Hence, with only one deal on the forward calendar for the Sept. 17 to Sept. 21 week, Baseline Oil & Gas Corp.'s $110 million offering of five-year senior secured notes (Caa1/CCC+), via Jefferies, high yield players will be keeping a weather eye on the First Data bank deal.

GM's 2033 notes up 1¼

In an otherwise quiet secondary market, a hedge fund manager saw GM's 8 3/8% notes due 2033 up 1¼ points at 83½ bid, 84 offered late Friday afternoon.

"People seem to think GM is a good play with $80.00 per barrel gas and the economy teetering on recession," the source commented.

The hedge fund manager also mentioned that Citigroup launched coverage on GM earlier in the week, with an analyst contending that there is a 50% chance that GM's share price could double.

That news, in conjunction with the news this past week that Citigroup will double subsidiary GMAC LLC's asset-backed credit facilities to $21.4 billion, replacing an existing $10 billion facility, "really caught the shorts pretty good," the hedge fund manager said.

Meanwhile another market source saw GM's bonds maturing in 2033 at 86¼ bid, on Friday, up from 86 bid at the Thursday close.

This source also saw shorter GM paper, the 7 1/8% notes due 2013, at 83¼ bid, up from the Thursday close of 833/4.

This source marked an even more dramatic advance for the GMAC LLC 8% notes due 2031 to 94 bid on Friday, up from 92½ bid at Thursday's close.

Meanwhile, according to the market source, the paper of Ford Motor Co. was also being marked higher on Friday.

Ford's 7.45% notes due 2031 were seen at 76¾ bid on Friday, up from Thursday's 76¼ bid.

And the Ford Motor Credit 7% notes due 2013 tightened Friday by 6 bps to a 524 bps spread to Treasuries.

Expecting a cut

The preponderance of leveraged markets sources who spoke to Prospect News on Friday expect the Federal Reserve's Federal Open Market Committee to cut Fed Funds rate by 50 basis points to 4.75% from 5.25% where the rate has sat unchanged since late June 2006.

A hedge fund manager said that anything less than 50 basis points, in conjunction with "accommodative language" meant to assure the markets that the Fed will be prepared to take further action if necessary, is apt to sour the markets.

Meanwhile the mutual fund bank loan portfolio manager, who let the word "recession" slip during the Friday telephone conversation with Prospect News, believes that the most likely scenario is that the Fed trims the rate by 25 basis points to 5% even.

This investor also believed that the mood of the credit markets will hinge upon the statement that emerges from the Tuesday meeting.

When Prospect News asked whether this source anticipates that the U.S. economy will slip into a recession in the months to come, the investor said: "We're not calling for a recession.

"But we are more or less with the consensus that the housing market is going to get weaker, the consumer is a question mark, and the Fed is going to be cutting.

"Those things say that people are going to be increasingly scared of a recession, and will probably trade securities in that context."

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