Ford leads auto recovery; AMD gains on numbers; Pilgrim's Pride gets plucked; Brocade hits road Monday

By Paul Deckelman and Paul A. Harris

New York, Oct. 17 - As the latest in a recent series of wild weeks on Wall Street came to a close on Friday, high yield bonds - which had started out the holiday-shortened week enthusiastically rebounding from their recent plunge, only to follow stocks decidedly downward at mid-week, ended mixed on Friday; while there were still some names seen down multiple points, there seemed to be more upsiders than downsiders, and there was a rebound in a key sector.

The recently beleaguered automotive names were on the rebound, led by Ford Motor Co., whose bonds had skidded downward on Thursday. Ford's domestic arch-rival, General Motors Corp., and GM's 49%-owned financing arm, GMAC LLC, were also seen by several market sources up multiple points, whether because of the continued news reports about GM's talks with GMAC majority owner Cerberus Capital Management LP - which also controls GM's other major domestic competitor, Chrysler LLC - or just because the once-robust bonds had been beaten down about as low as they could go, with some of the formerly mighty GM's paper trading this week below 20 cents on the dollar.

Also on the upside was Advanced Micro Devices Inc., whose bonds firmed after the Sunnyvale, Calif.-based computer chip manufacturer reported a smaller loss versus a year ago, with better-than-expected revenue totals - no small feat in a tough industry environment in which AMD is clearly the underdog in its battle with the considerably larger and more financially solid Intel Corp.

But some bonds stayed on the downside, notably Pilgrim's Pride Corp.; the top chicken producer's paper, along with its shares, got slaughtered on investor reaction to a Wall Street Journal story warning that the company might have to file for bankruptcy if it cannot successfully renegotiate a debt refinancing with its lenders. Pittsburg, Tex.-based Pilgrim's Pride said that it was not considering any sort of a bankruptcy filing.

In the primary market, sources said that Brocade Communications Systems Inc. would begin marketing its planned issue of six-year notes to potential investors beginning Monday in Los Angeles.

Market indicators mixed

The widely followed CDX index of junk bond performance, which had fallen by about 1¼ points on Thursday, was up by about the same amount on Friday, a trader said, quoting it at 80 bid, 80½ offered. The KDP High Yield Daily Index, on the other hand, was down by 19 basis points to end at 53.42, as its yield widened by 10 bps to 16.31%.

In the broader market, advancing issues moved ahead of decliners, although by a relatively small margin. Activity, represented by dollar volume, was off by about 1% from the levels seen on Thursday.

A trader noted that comparing the current psychological state of the market to the deep, dark funk which had covered Junkbondland just a week before, "we've gone from the ultimate depression" to something not too far removed from the irrational exuberance that Alan Greenspan had warned the financial markets about not so many years ago - wild swings between polar opposites of sentiment with seemingly little rhyme or reason.

But a syndicate official said bond and loan prices are continuing to come under pressure as a result of forced selling, especially on the part of hedge funds.

"There are stories out there about people bargain shopping, however right now most investors appear to be on the sidelines," the syndicate official remarked.

During the third quarter hedge funds' assets under management declined by $210 billion, or more than 10%, $31 billion of it resulting from redemptions, according to a market source, who cited information from Hedge Fund Research.

As a result hedge funds' assets under management fell to $1.72 trillion, from the $1.93 trillion under management at the end of the second quarter, the source added.

Ford tows auto names higher

One name demonstrating the market's mood swings was Ford Motor, whose bonds had led the auto sector downward on Thursday, but did a perfect U-turn on Friday and headed back upward.

In Thursday's session, several market sources saw its signature issue, the 7.45% bonds due 2031 gyrate all around, moving as high as the low-to-mid 30s before suddenly reversing course to finish down by as much as 10 points on the day at about the 22-23 level, in very active trading, though on no fresh concrete negative news about the Dearborn, Mich.-based Number-Two U.S.-based vehicle manufacturer. Other participants had seen smaller moves, but still saw the Ford benchmark down at least a couple of points, around the mid-20s.

But that was Thursday. On Friday, a trader saw the 7.45s as having gained 3 points to close at 27 bid, 29 offered.

Another market source saw the bonds do even better, pegging them up by as much as 6 points to end at 28, in vigorous dealings, while also seeing other Ford bonds likewise better - its 6½% notes due 2018 up by 3 points on the day to 24 bid.

Ford's automotive financing arm, Ford Motor Credit Co., was also higher, its 7% notes due 2013 jumping 6 points to the 45 level, while its 9¾% notes due 2010 finished at 57, also up 6 points on the day. The Ford Credit 5.80% bonds coming due in January edged back above the psychologically potent 90 landmark, up more than 3 points on the day.

Ford Credit's short-dated 5.80% notes coming due in January were 3 points better at 91.5.

Ford's New York Stock Exchange-traded shares meantime rose 16 cents, or 7.05%, to end at $2.43. Volume of 65.5 million shares was marginally above normal levels.

There were some news reports circulating around late Thursday and Friday that Ford was trying to sell the bulk of its 33.9% stake in Japanese automaker Mazda Motor Corp., hoping to raise about $1 billion of fresh capital that way. The reports - as of press time on Friday evening still strictly unofficial and not confirmed by Ford - indicated that it was shopping small pieces of its Mazda stake to a number of Japanese insurance companies, each of which would buy 1% of Mazda for around $40 million. Ford reportedly is not trying to sell its Mazda stake to any rival automaker because it wishes to continue its long partnership with the Japanese company, which dates back to 1979.

Ford late Friday also announced the resignation of two outside directors from its corporate board, although that's not thought to be any kind of sign of a major executive change; rather, the company said that John Bond, who serves as nonexecutive chairman of Vodafone Group plc and Jorma Ollila, who is chairman of Nokia Corp. and Royal Dutch Shell plc felt they did not have the time to properly devote to Ford and quit the board in order to better focus on their respective responsibilities at their own companies and to advise European governments. They will not be replaced at this time.

GM, GMAC take an upside ride

Also in the automotive sphere, a trader said that GMAC "is up a few points today, at the least," and also saw its 49% owner, General Motors, higher as well. He speculated that the bonds may have gotten better on "all of the alleged merger stuff," referring to news reports of GM's talks with GMAC majority owner Cerberus about a possible combination with crosstown rival Chrysler, which is 80% owned by Cerberus.

Alternatively, he suggested, "maybe people just got tired of them going down."

He quoted GMAC's 8% bonds due 2031 as having risen 6 points to 33 bid, 35 offered, noting that the issue was "the best one" in the lender's capital structure, and also saw GMAC's 7¾% notes due 2010 up 3 points to 56 bid, 58 offered.

However, late in the day, another market source called the GMAC 8s unchanged at around 29 bid.

At yet another desk, a market source pegged GMAC's 5.85% notes coming due in January at 85 bid, up nearly 7 points, while its 6 7/8% notes due 2012 were up 3½ points at the 43 level.

The first trader also saw GM's benchmark 8% bonds due 2033 at 24 bid, 25 offered, which he called a 5 or 6 point rise, also likely on the GM-Cerberus negotiations news - although one trader quipped that talks about combining the two embattled car makers, each fighting to hold onto market share in the face of massive sales declines, was akin to "rearranging the deck chairs" on the Titanic.

He saw the benchmarks up a more restrained 2½ points to 23 bid, 25 offered.

Among GM's shorter-dated issues, its 7 1/8% notes due 2013 gained 3 points to just under the 30 mark. Its 7.20% notes due 2011 gained more than 4 points on the day to finish at 40.5 bid.

The talks between GM and Cerberus are not new news - the market has been talking about this story in one form or another for around a week, with some variations including GM swapping its 49% stake in GMAC to 51% GMAC owner Cerberus in exchange for the latter's Chrysler holdings, which would then presumably be combined with GM's own automotive operations.

Observers have pointed out that GM - whose sales have been declining by double-digit percentages each month versus year-ago levels, like the rest of the industry - already has a truckload of its own problems and would merely inherit more by buying Number-Three domestic producer Chrysler, including adding some $7 billion of Chrysler debt to its own already substantial debt burden, and problems integrating - or disposing of - Chrysler personnel and operations, including the latter's large dealer network, which competes directly with GM dealers in many places. On the other hand, GM may be anticipating bringing in some $10 billion of Chrysler cash, plus as much as another $3 billion from Cerberus, at a time when GM's own capital position is under intense scrutiny because of its anticipated cash-burn rate of better than $1 billion a month for at least the next year.

Late in the day, there was also news out that GM was sending a sales prospectus for its Hummer brand out to potential buyers. GM has been exploring what to do with the formerly hot-selling maker of civilianized versions of the rugged military-style SUVs, whose sales of the big, fuel-thirsty vehicles went into a tailspin when gas prices began climbing rapidly.

AMD gains on relatively good numbers

Outside of the autosphere, Advanced Micro Devices bonds pushed upward after the second-largest computer-chip manufacturer reported better-than-expected third-quarter numbers.

A market source said that AMD's 7¾% notes due 2012 pushed up to 67 bid, up about 6 points on the session, although on a round-lot basis, there actually was little change, the bonds staying around 63 bid.

AMD's NYSE-traded shares shot up by almost 10% initially on the numbers, although they later came off that peak to end up 2.18%, or 9 cents, at $4.21. Volume of 381.9 million shares was more than 1½ times the usual activity level.

AMD reported a loss of $67 million, or 11 cents a share, down from the year-earlier deficit of $396 million, or 71 cents a share. Revenue of $1.78 billion was up from $1.56 billion a year earlier. The results handily beat Wall Street's expectations of a 40 cents-per-share loss on revenue of about $1.5 billion.

Community Health recovery

Another upsider was Community Health Systems Inc.'s 8 7/8% notes due 2015, which rose more than 2 points to just under the 82 level, after having traded around 78-79 earlier in the week. The big Franklin, Tenn.-based hospital operator's $3 billion issue is considered one of the junk market benchmarks because of its great size and widespread holding by junk investors, but has been the target of extensive selling by accounts needing to raise capital. Those sales, on generally heavy volume, had battered the bonds down to around the 80 level from levels around par earlier in the year.

Pilgrim's Pride pounded.

A trader saw Pilgrim's Pride's 7 7/8% notes due 2015 drop by 5 points to 43.5 bid, 44.5 offered, after The Wall Street Journal speculated that the nation's biggest chicken producer might have to file for bankruptcy if it could not negotiate a refinancing of its debt.

The company's NYSE-traded shares initially fell as much as 28.4%, and finally ended down 23.5%, or 76 cents per share, at $2.47. Volume of 7 million shares was more than twice the norm.

The bonds and shares nosedived after the paper reported on the company's troubles, which include weak prices for the chicken it sells, versus considerably higher price for corn and other grains used as the feedstock for its millions of birds. The company, facing the need to refinance over $1 billion of debt, has also run head on into the credit crunch.

But while the Journal reported on its hiring Weil Gotshal & Manges LLP as bankruptcy counsel. and trying to line up debtor-in-possession financing, Pilgrim's Pride says it is not looking at bankruptcy as an option. A company spokesman said that while it is looking to develop a business plan, "we don't believe that a bankruptcy filing would be in anyone's best interest, certainly not for our lenders, nor for our company or investors."

Brocade starts Monday in LA

In the primary, news emerged that Brocade Communications Systems Inc. will start a roadshow on Monday in Los Angeles for its $400 million offering of six-year senior unsecured notes (B2/BB-).

The roadshow will last through the week. Specific timing as to when the deal is expected to price remains to be determined.

Banc of America Securities and Morgan Stanley are joint bookrunners for the unsecured portion of the financing for Brocade's acquisition of Foundry Networks, Inc.

The size of the unsecured financing was downsized by $100 million in September, with the proceeds shifted to the company's bank loan.

One-car parade

At Friday's close Brocade remained the only deal in the primary market.

Friday's close also capped the third consecutive full week to pass with no deals pricing.

The last issuer to raise money by selling high-yield bonds was Memphis-based restaurant operator and franchiser Perkins & Marie Callender's Inc., which priced a $132 million issue of 14% senior secured notes due May 31, 2013 at 94.29 to yield 15¾% in a quick-to-market deal on Sept. 24, via Jefferies.

At Friday's close year-to-date issuance came to $69.2 billion in 128 high-yield dollar-denominated tranches, the lowest amount of issuance for a year to the Oct. 17 close since 2002 which had seen $46 billion price in 194 tranches during that approximately 101/2-month period.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.