Idearc bonds gyrate after Chapter 11 filing; GM slides as bankruptcy beckons; BWAY issues talk on upcoming deal

By Paul Deckelman and Paul A. Harris

New York, March 31 - Idearc Inc.'s bonds were by far and away the most heavily traded instruments in Junkbondland on Tuesday, following the not-unexpected news that the Dallas-based phone directory publisher, hit hard by the recession-related plunge in advertising revenues, had made a voluntary Chapter 11 filing in order to implement a debt restructuring plan already agreed to by significant creditors. The bonds - already languishing in the low single-digits -- initially lost most of what little remaining value they still had, but then came off those early lows and clawed their way back to around the same levels they have recently been holding,

An increasing number of junk market denizens were meantime seeing General Motors Corp. as perhaps the next high yield issuer likely to slide into bankruptcy - or, if not necessarily the next one, then one of the next ones, somewhere not too far down the line, especially with president Barack Obama talking up the concept as a distinct possibility. The troubled carmaker's bonds - which reeled on Monday on the forced ouster of GM's CEO and the federal rejection of its Viability Plan - continued to retreat Tuesday, with prices on different GM issues starting to converge in price, no matter what the maturity, yet another possible harbinger of bankruptcy.

GM domestic arch-rival Ford Motor Co.'s bonds meantime were seen unchanged to a little better, apparently benefitting from the fact that Ford is not GM.

In the primary arena, price talk emerged on BWAY Corp.'s upcoming issue of five-year notes, which could come to market as early as Wednesday. Meantime, AES Corp.'s new issue of seven-year bonds fizzled after an early rally try, to end unchanged around Monday's pricing levels. With cash waiting to be put to work and a paucity of new junk paper to sop some of it up, participants took an interest in the new, nominally investment-grade deal brought to market Tuesday by BBB credit Ingersoll-Rand Co. Ltd.

Market indicators bounce back

Back among existing bonds a trader saw the widely followed CDX Series 12 High Yield index of junk bond performance - which he said fell "dramatically" on Monday, plunging 1¾ points - up slightly on Tuesday, gaining 1/8 point to end at 70.625 bid, 71 offered.

The KDP High Yield Daily Index meantime reversed an early decline and rose by 10 basis points to 53.16, while its yield decreased by 2 bps to 13.44%.

In the broader market, advancing issues pulled almost even with decliners, trailing them by only a narrow margin.

Overall market activity, measured by dollar-volume totals, jumped 85% from the levels seen in Monday's session.

A trader said that he saw "a definitely better tone overall" compared with Monday's sentiment.

Among large and usually widely traded market barometer issues, he saw Aramark Corp.'s $1.25 billion of 8½% notes due 2015 edging up 1/8 point to 92.375, on "very active" volume of $20 million, while First Data Corp.'s $2 billion-plus of 9 7/8% notes due 2018 firmed to 58.75 from 57.5 on Monday, which he called "a little more indicative of how our market did." Some $7 million of the bonds were traded.

Another trader characterized Tuesday as "a tough day. A lot of accounts were looking at the month-end and the quarter-end." He said that "the main focus, with a lot of chatter is on the news-related items - the autos, Idearc and Washington Mutual."

Idearc active after bankruptcy filing

Idearc's bonds were easily the busiest bonds of the day on the news - which came as no big surprise - that the phone directory publisher had filed a Chapter 11 case with the U.S. Bankruptcy Court for the Northern District of Texas in Dallas in order to implement a debt restructuring plan backed by some of its major creditors.

A trader said that "a ton" of Idearc's 8% notes due 2016 had traded, and saw them mostly in a range of 2.875 to 3.5.

Another, seeing them in the 2-3 area, said they were "up a touch from this morning, when they were lower than that. They dipped, and then bounced."

Yet another trader said Idearc was the most heavily traded junk issue of the day, with over $116 million changing hands. He saw the bonds trading at a round-lot level of 3.25 versus 3.875 on Monday.

A market source saw the 8s open at around the same 3.5 bid level at which those bonds had finished trading on Monday, then fall as low as 1, before gradually clawing their way back up to around their opening level, in busy round-lot trading of well over $100 million by mid-afternoon - about twice as much as the next most-actively traded issue.

Idearc - whose $2.8 billion of bonds were trading as high as the middle-60s a year ago, and were still around 10 as recently as January - said that it had "reached an agreement in principle with the agent bank and a steering group of its secured lenders on certain critical elements of a plan of reorganization," to be implemented via the bankruptcy filing. It expects to be able to file a plan of reorganization in approximately 30 days, and "if implemented as proposed, this plan will enable Idearc to significantly reduce its outstanding debt to a more suitable level upon emergence from the legal proceedings." The plan envisions cutting its $9 billion of total debt by about two-thirds.

Idearc further declared that it doesn't intent to seek debtor-in-possession financing during the reorganization, saying that it "maintains substantial cash balances and continues to generate positive cash flow, and has reached an agreement on use of cash collateral."

While Idearc's bonds were jittering around, its virtually worthless Pink Sheets-traded penny stock shares lost about 37% of their little remaining value, sliding to around 3.6 cents, on volume of some 15 million, 10 times the usual turnover.

A trader meantime saw "not much" happening with Idearc rival R.H. Donnelley Corp.'s bonds in response to Idearc's fall, seeing issues like the 8 7/8% notes due 2016 "still trading in the single digits" at a 6-6.25 level.

He saw the Cary, N.C.-based directory publisher's other paper likewise unchanged, with the 9 7/8% notes due 2013 at 23 bid, 25 offered and its 8½% notes due 2010 at 51 bid, 54 offered.

GM facing Chapter 11?

The specter of possible bankruptcy meantime hung over the company considered one of the bluest of the blue chips, General Motors, in the wake of the largely unexpected weekend ouster on government orders of its chief executive officer, Rick Wagoner - published reports said that Wagoner never saw it coming - as well as the federal rejection of GM's vaunted Viability Plan that the troubled carmaker had hoped would convince Uncle Sam to pony up another $16.6 billion of bailout cash.

President Obama on Monday warned that GM, as well as smaller rival Chrysler LLC, must do more to cut labor costs and debt or face a cutoff of federal assistance and a probable bankruptcy. Even GM's new CEO, Fritz Henderson, conceded Tuesday that bankruptcy is now "more probable" than before and predicted that more plans would have to be closed to bring costs down.

All of that maelstrom has GM's bonds "off a couple of points again today," a trader said, adding that he'd seen the prices of the various issues "starting to flatten out, dollar-price wise, across the structure." Such convergence is usually a sign the market believes bankruptcy is coming

Another saw GM "going lower," noting that "a lot" of the benchmark 8 3/8% bonds due 2033 traded around a 12-14 context, down 2 or 3 points. Late last week, those bonds were cruising along in some cases north of 20 for the first time in many months, bondholders emboldened by the apparent success of GM's efforts to cut costs by buying out some of its unionized hourly work force.

But on Tuesday, the trader said, the bonds were converging around 11.5 to 12.75.

Yet another trader saw the benchmarks - the most active automotive issue, with some $29 million changing hands - down 3 points on the session at 13 bid, while the company's 8¼% notes due 2023 also fell to 13, from a recent 18.375. Its 7.20% notes due 2011 dipped to 14 bid from 18.75, on $14 million traded.

GM's skid towed the bonds of its 49%-owned GMAC LLC auto-loan financing unit along with it, with the latter's 5 5/8/% notes coming due on May 15 at 95 bid, or a 45% yield to maturity, down 3/8 point, on volume of 17 million, while GMAC's 7 3/8% notes due 2010 fell back to 79.75, down ½ point, on $12 million traded.

Ford seen as the un-GM

While industry observers have warned that a bankruptcy by any of the Big Three could ultimately result in all of them sliding into insolvency, since it would cripple the parts-supplier companies that serve each of them, as well as the foreign-owned "transplant" producers, the junk market seems not to be playing it that way so far, with GM arch-rival Ford's bonds pretty much holding their own as GM's veer off into a ditch.

A trader said that Ford was "a little better," with its 7.45% notes due 2031 at 30 bid 32 offered. He said there was "not much activity there." He also saw little or no real activity in the Ford 7 3/8% notes coming due later this year, pegging them at 90 bid, 91 offered, "maybe down a point."

Another trader saw the 7.45s move up to 32 from 30.5 on Monday, although he allowed that it was on only $2 million traded.

Another trader saw the Ford long bonds unchanged on the day at 29.5 bid, 30.5 offered.

Analysts have noted that while GM and Chrysler are both begging for Washington handouts, Ford - which lined up financing two years ago - has not had to ask for a direct government bailout, its only request being that a standby line of credit be made available should industry conditions continue to deteriorate to the point where Ford would be forced to tap those funds, something company executives believe to be unlikely.

Hertz higher, again

A trader saw that Hertz Corp.'s bonds - which have been on a fairly smooth upside ride for over a week now - were firming again on Tuesday, riding the crest of recent momentum generated by the Parsippany, N.J.-based car-rental powerhouse's debt reduction plans.

The Hertz 8 7/8% notes due 2014 gained ½ point on the day to 61 bid, on turnover of $6 million.

WaMu seen mixed

A trader said Washington Mutual Inc.'s senior holding company paper was down 1½ points at 79 bid, 80 offered, while its junior holdco bonds were down 3 points to 53 bid, 55 offered.

Both of those categories have come down gradually from recent highs, the senior holdco notes at one point getting into the mid-80s and the subordinated juniors in the lower 60s.

However, he saw the failed Seattle-based thrift operator's senior Washington Mutual Bank paper, like its floaters coming due on May 1, "up a couple of points" at the 26-27 level.

New AES bonds' rally sputters

Among the newly priced issues, a trader said AES Corp.'s new 9¾% notes due 2016 "tried to do better today," after having traded on Monday at 94 bid, 94.125 offered, "just above" the 93.98 level at which the Arlington, Va.-based global electric power producer priced its $535 million of bonds, upsized from the originally planned $350 million.

He said "a lot of the trades [late Monday] were happening down into a 94 bid, which is a penny above the issue price."

On Tuesday, he said the bonds got as good as 94.125-94.375, and "creeping up, but then by the end of the day, they kind of gave it all back , and we did see 94 bids getting hit walking out the door."

Another trader also saw the new AES paper firm to 91.125, but then get left at 94 bid, 94.25 offered.

And he saw the nominally investment grade-rated Ingersoll-Rand 9½% notes due 2014 trade up to 101.5 bid - well up from the 99.992 level at which the $655 million of the bonds priced.

A trader meantime said the anticipated BWAY Corp. offering, "coming tomorrow, is probably the next big thing in our space."

BWAY sets talk

The only prospective issuer roadshowing a deal, BWAY Corp., set price talk for its $200 million offering of five-year senior subordinated notes (B3/B-) on Tuesday.

The notes are talked with a 10% coupon, to be priced at a discount to yield between 13½% and 13¾%.

The books will close at 2 p.m. ET on Wednesday, with pricing expected after that.

Deutsche Bank Securities and Goldman Sachs & Co. are joint bookrunners for the debt refinancing deal from the Atlanta-based producer of rigid metal and plastic containers.

Big demand for Ingersoll-Rand

Ingersoll-Rand Global Holding Co. Ltd.'s slightly upsized $655 million high-grade deal was multiple times oversubscribed, and was the subject of extensive interest from high-yield accounts, according to an asset manager from a mutual fund, who participated in the deal.

The issue of 9½% five-year senior notes (Baa1/BBB+) priced at 99.992 to yield 9½%.

The notes priced at the tight end of the 9½% to 9 5/8% price talk.

Credit Suisse, Goldman Sachs & Co. and JP Morgan were joint bookrunners.

"It was priced at an extreme discount to where the existing bonds were quoted," said the asset manager whose portfolio includes high-grade bonds, high-yield bonds and stock.

"That's because the company has a lot of liquidity needs that need to be met," the investor explained.

"They have a lot of commercial paper outstanding. They have a bond put. And they have a lot of maturities to address."

In addition to the bonds, the company announced it would do $300 million of convertible bonds due 2012 and a $200 million one-year trade receivables financing agreement.

The proceeds will primarily be used to repay a bridge loan set to mature in June 2009 incurred in connection with its June 2008 acquisition of Trane.

"Business has been really soft, also," the investor added, noting that the company announced its first quarter sales declined by 27%.

Priced to move

Initial guidance on the Ingersoll-Rand notes due 2014 came out in the high-nines to the low-10s, the investor said.

Later formal price talk of 9½% to 9 5/8% was heard - and the deal priced at the rich end of that talk.

"It was priced to move," the investor remarked, "even at the richer terms."

Deals in the high-grade market have all been priced to move, the asset manager stated.

"When you have something that's investment grade paying close to 10%, even if its business is weak, that puts you in high single-B/low double-B terrain.

"There is a tremendous appetite for higher-yielding paper, especially if it's investment grade," the asset manager said.

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