GM bonds easier after sales numbers, Goodyear gain continues; Allis-Chalmers, Open Solutions slate deals

By Paul Deckelman, Paul A. Harris and Ronda Fears

New York, Jan. 3 - General Motors Corp. bonds were seen rolling in reverse Wednesday - albeit on thin trading - after the world's largest carmaker reported a larger-than-expected sales drop for December. Bonds of GM arch-rival Ford Motor Co. were also seen easier.

But elsewhere among the automotive-related names, Goodyear Tire & Rubber Co.'s bonds firmed for a second consecutive session, continuing the bounce seen in the Akron, Ohio-based tiremaking giant's paper now that the long and costly strike by its hourly North American workforce is over.

Outside of the autosphere, a trader saw Blockbuster Inc. bonds better after the Dallas-based home video rental industry leader announced that it had met its 2006 goals for on-line movie rentals - an area perceived by many observers to be the future for the industry. But what was good for Blockbuster was not so good for the industry's Number-Two player, Movie Gallery Inc., which unlike its bigger competitor has resisted the on-line rental trend, preferring to channel all of its efforts into its brick-and-mortar stores - a channel which now accounts for a steadily declining percentage of total home video rentals.

The primary arena, meantime started to show signs of coming back to life after its extended end-of-year hiatus, as deals for Allis-Chalmers and Open Solutions Inc. made their respective ways onto the forward calendar.

GM spins its wheels

Back in the secondary, GM's bonds were stuttering along in the breakdown lane after the Detroit giant reported a larger-than-anticipated 9.6% fall in December car and truck sales in North America versus year-earlier totals.

GM's benchmark 8 3/8% notes due 2033, which had previously been cruising as high as 92.5 bid, were quoted heading for home at levels below 91, although most late trades were relatively small.

GM earlier in the day had reported that December sales were down 9.6% from a year-earlier - a sharply wider decline than most analysts had anticipated - they had been looking for a drop in the 2% to 3% range. While car sales were pretty much flat, sales of light trucks and sport-utility vehicles - up until now the most profitable segment of the market for domestic manufacturers like GM, Ford and the U.S. division of DaimlerChrysler AG - continued to suffer, as gasoline prices zig-zagged back upwards.

GM's once-commanding share of the domestic automotive market continued to erode; in December its market share for the month was 23.5%, continuing to fall from even the anemic average for the year of 24.3%. In 2005, it had held 26% of the American market.

GM was forced to revise its 2007 first-quarter production forecasts slightly down, to 1.12 million vehicles from 1.14 million previously.

Trading in Ford bonds was brisk, and also to the downside, with its 7.45% notes due 2031, which had previously traded north of 79, seen having retreated to about 78.5 after Ford reported a not-unexpected fall in sales for the month of a whopping 13%, and a 7.7% sales decline for the year.

Goodyear extends gains

Goodyear's bonds, on the other hand were seen headed in the opposite direction, as investors expressed confidence in the company, now that its strike was over.

Goodyear's 7.857% notes due 2011 were seen at 102 bid, up ½ point, after having risen on Tuesday as well on the strike's end.

At another desk, its 9% notes due 2015 were seen up 1½ points on the session at 106.

The improvement in the bonds follows the news, announced Friday, that the strike against the company by some 14,000 hourly employees at a 16 plants in the United States and Canada was over, after 12 striking locals in 10 U.S. states and four more in Ontario had approved a new contract. Members of the United Steel Workers union, who had put down their tools and picked up picket signs when their old contract expired on Oct. 5, went back to their jobs at those plants on Tuesday after nearly three months' absence.

During that time, Goodyear had managed to limp along, using temporary replacement workers and management employees, as well as supplementing its truncated domestic production with output from its overseas factories.

Goodyear said that with production at the affected tire and engineered products plants slated to ramp up over the next few weeks, full supply of Goodyear products is expected to be available soon after that.

Goodyear says the new three-year agreement will help reduce its costs by $610 million in that time frame, with savings of $70 million this year, $240 million in 2008 and $300 million in 2009, and some $300 million a year thereafter.

Blockbuster up, Movie Gallery down

A trader said that Blockbuster "had some good numbers," in terms of its subscriber growth for its new on-line service, which pushed the company's 9% notes due 2012 up a point to 97.5 bid, 98.5 offered.

But while Blockbuster was going up, Movie Gallery's 11% notes due 2013 fell 2 to 3 points to the 74.5 area on the heels of Blockbuster's good news about how the company met its 2006 goal for on-line movie rentals.

"As on-line continues to steal share from the in-store market, it will be increasingly difficult for Movie Gallery to generate decent returns from its stores. Bondholders would be best served by cashing out now," another trader said.

"But as I've stated many times, whether bondholders choose to force default or force dilution, Movie Gallery has got to do something pretty soon."

On Wednesday, Blockbuster credited a new program, Blockbuster Total Access, launched Nov. 1, for helping it reach its 2006 goal of 2.2 million paying subscribers to its online rental service.

On top of that, the trader said the market is anticipating Netflix Inc. subscriptions will approximate 6.3 million at year-end 2006, and Apple Computer Inc. is launching an on-line movie access service.

"So you're already looking at 8.5 million on-line subscribers as of the end of fourth quarter. Importantly, the on-line market stood at 5.4 million subscribers as of the end of fourth quarter 2005. So the market has grown by nearly 60% year-over-year and continues to grow rapidly," the trader said.

"Movie Gallery has been fighting this, trying to downplay on-line competition - but it's very real."

Sirius better on subscriber numbers

Also in the realm of subscription services, a trader saw Sirius Satellite Radio Inc.'s bonds continuing to firm, seeing those 9 5/8% bonds due 2013 around 99 bid, par offered, which he called up a point on the day.

It was the second straight stronger session for the upstart New York-based satellite broadcasting company.

After the market had closed on Tuesday, the company announced that it ended 2006 with 6.024 million subscribers - slightly more than the middle of the 5.9 million to 6.1 million range the company had projected in early December.

Sirius also said that it had achieved its first-ever quarter of positive free cash flow in the fourth quarter, after capital spending, in line with its previously announced expectations.

Adelphia up on plan approval

In the distressed-debt market, Adelphia Communications Corp. bonds were seen as better by about a point as the path to exiting bankruptcy appears to have cleared up with approval of its latest reorganization plan despite continued objections.

On Wednesday, U.S. Bankruptcy Judge Robert Gerber said the company's plan secured the approval of creditors that account for 84% of the claims it owed, clearing the way for the company to exit bankruptcy proceedings.

That came in spite of a court filing Tuesday by Adelphia bondholders objecting to the company's proposed changes to its fifth amended plan of reorganization, asking the court to deny plan confirmation or force the company to re-solicit votes of all creditors.

Greenwood Village, Colo.-based Adelphia, previously one of the biggest cable companies in the United States, filed bankruptcy in June 2002 in the wake of an accounting scandal that ultimately resulted in the conviction of founder, John Rigas, and members of the Rigas family.

Since filing Chapter 11, its cable assets have been sold to Time Warner Inc. and Comcast Corp., and it will be winding down its remaining operations as it exits bankruptcy.

According to the bondholders' objection, other than announcements in open court and filings, no notice has been given to Adelphia creditors of the proposed plan modifications, which adversely impact their recoveries. While the bondholder group said it actively participated in the confirmation hearing as an objecting party and made clear that each of its members voted to reject the plan, other creditors have not been similarly involved.

Before the holidays, Adelphia Communications said it anticipated a delay in its reorganization proceedings.

Open Solutions, Allis-Chalmers announce deals

In its first full session of 2007, the high-yield primary market got down to business with the circulation of new deal announcements, although no issues were priced.

Connecticut-based Open Solutions Inc. will begin a roadshow on Monday for its $325 million offering of eight-year subordinated notes (Caa1/CCC+), an LBO deal via Wachovia Securities, JP Morgan and Merrill Lynch.

The company provides software and software-enabled outsourcing solutions to banks, thrifts, and credit unions.

Also announcing on Wednesday was Houston oilfield services firm, Allis-Chalmers Energy Inc.

The company will conduct a roadshow during the Jan. 15 week for its $225 million offering of 10-year senior notes.

RBC Capital Markets is in the lead.

Proceeds will be used to repay a portion of the debt outstanding under its $300 million bridge loan facility, which was incurred to finance Allis-Chalmers' recent acquisition of Oil & Gas Rental Services, Inc.

The company is making a concurrent equity offering of 4.5 million shares.

In addition to the two deals from U.S.-based companies, Brazilian beef exporter Industria e Comercio de Carnes Minerva Ltda. will begin a roadshow in Hong Kong on Jan. 10 for its $150 million offering of 10-year unsecured unsubordinated notes (/B/B+).

The Rule 144A/Regulation S deal will be marketed in the United States beginning Jan. 16.

Credit Suisse is leading the short-term debt refinancing and general corporate purposes deal.

Expecting slow build-up

A high yield syndicate official, speaking to Prospect News on Wednesday, reiterated what the source's counterparts in other institutions said during the Tuesday session: the early 2007 new deal calendar will likely grow gradually, not precipitously.

This official recalled that following the Labor Day break the primary market took its time gathering speed for what would eventually become a history-making finish to the record-breaking year of 2006.

Likewise, the source said, high yield syndicates may take a few days to get their ducks in a row before launching junk deals.

However this source declined to rule out surprises.

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