GM bonds off on labor concerns; Dole dives on bad numbers

By Paul Deckelman and Paul A. Harris

New York, Nov. 21 - General Motors Corp. bonds were heard driving lower Tuesday, as the head of the United Auto Workers union outlined the labor group's expectations for the 2007 contract talks it will hold with the giant automaker - drawing a potential line in the sand over such issues as retention of the "jobs bank" feature of the current contract, seen by the carmaker as a great drain on its finances.

Some Delphi Corp. bonds were seen better, as the union and the bankrupt Troy, Mich.-based parts company - and former GM unit - reached an agreement to convert temporary workers it has recently hired to permanent status.

Apart from the autos, Dole Food Co. Inc. bonds were lower, after the Westlake Village, Calif.-based fruit and vegetable company reported worse-than-expected quarterly numbers.

And apparent market expectations of good numbers to be reported Wednesday pushed the bonds of Tembec Industries Inc. higher. Also seen heading higher, continuing a recent trend, were Calpine Corp.'s notes.

Primary activity was nil, with just two deals on the November forward calendar - which likely won't be seen till next week - as the market heads into Wednesday's abbreviated pre-holiday session (The Bond Market Association has recommended a 2 p.m. ET close ahead of Thursday's Thanksgiving holiday, which will see all financial markets in the United States shuttered; the Association is also recommending an early close Friday. Prospect News High Yield Daily will not publish on Thursday or Friday).

In the secondary market, activity on the last full trading day of the week was seen as mostly quiet and rangebound. A trader saw the overall market down 1/8 point, with the CDX High Yield index at 102.125-102.1875.

"The messages kind of slowed down at the end of the day," he said. "Things kind of went out with a whimper," rather than a bang. "You go through these messages, you get a couple thousand a day, and it was just the same old [expletive]. I didn't really see anything of significance."

Other sources also marked the broad high-yield market lower again on Tuesday.

A buy-side source was marking junk down ¼ to ½ point, and added that high yield began trading off mid-day last Thursday and has been softer ever since.

During that span of time the source estimates that the market has given up ½ to ¾ point in value.

Meanwhile a sell-sider also said that the broad market was lower on Tuesday.

This source reckoned that the softness can be attributed to big mergers and acquisitions announcements heard recently, acquisitions that will be financed in the leveraged markets.

In particular the source mentioned Freeport McMoRan Copper & Gold Inc.'s pending $26 billion acquisition of Phelps Dodge Corp., which is expected to generate $6 billion of new high yield bonds with seven- to 10-year maturities, and to price in the range of 8¼%.

The financing is also expected to generate $10.5 billion of new bank debt.

The financing commitment is from JP Morgan and Merrill Lynch. The transaction is expected to close in the first quarter of 2007.

GM heads downward

About the only sector where anything at all seemed to be going on, he said, was in the autos, which was where "the bulk of the action," what there was of it, took place.

Chief mover among those names was GM, whose benchmark 8 3/8% notes due 2033 were seen by several traders to have fallen about 1½ points on the session to about 90.5 bid 91 offered from prior levels around 92.125 bid, 92.375 offered. A market source saw the company's 7 1/8% notes due 2015 at 92.75, off ½ point.

GM's New York Stock Exchange-traded shares were meantime down $1.57 (4.59%) to close at $32.62 on volume of 24.1 million shares, about 2½ times the norm.

The shares - and the bonds - were seen lower in the wake of comments from UAW president Ron Gettelfinger, who said the union would open talks with GM in July in hopes of coming up with an industrywide master agreement to agreement to replace its current contracts with GM, Ford Motor Co. and DaimlerChrysler AG's domestic arms, Chrysler Group, which expire in mid-September.

In a live lunch-hour internet chat Tuesday with union members and reporters on the organization's website, Gettelfinger signaled that the union will not easily give the concessions that the beleaguered carmakers hope to get to bring down their bloated labor costs.

"It's too early to predict the outcome of any negotiations but it is not our intent to go backwards in the [2007] bargaining," he declared.

The union boss made it clear that the UAW sees preserving the jobs bank arrangement that the union currently has with the automakers as a major priority.

"Why would you think anything else?" he replied, when asked by a participant on the chat session whether the union will attempt to preserve the controversial jobs bank.

Under the terms of the current agreement, laid-off UAW workers are entitled to receive most of their pay and benefits, even when they are not working.

The automakers - particularly GM and Ford, who have each announced plans to close numerous plants and other facilities and to eliminate upwards of 25,000 positions apiece as they try to bring their North American operations in line with reduced sales - say that having to continue to pay the laid-off workers most of their compensation costs them tens of millions of dollars annually and puts them at a competitive disadvantage versus the leaner Japanese and other Asian rivals who also produce cars in the United States, but have no such requirements with which to comply.

Separately, a top GM executive said Tuesday that the carmaker's efforts to turn around the fortunes of its domestic division "are not yet finished," and that much remains to be done.

Troy Clarke, GM's president for North America, asserted in a speech to automotive reporters in Detroit that the world's largest carmaker has more work to do to complete its restructuring and meet its goal of cutting structural costs to 25% of net sales.

Ford off a bit

A trader said Ford's bonds "were not hit as hard" as GM, down about ½ point, with its 7.45% notes due 2031 seen around the 77.5 level. Its Ford Motor Credit Co. financing arm's 7% notes due 2013 were likewise down ½ point at 94.75.

He attributed the decline in the carmaker's bonds to "a combination of the economic advisors coming out and saying the economy is going to be slower next year, and [the fact that] there's a lot of auto paper that's been slapping around on the street.

"This Lear [Corp.] deal," which priced on Monday at par and then promptly traded down, "fell like a rock," he continued, with the Southfield, Mich.-based automotive interior and seating components maker's new bonds seen Tuesday trading at around 98.5 bid, 98.75 offered for both the 8½% senior notes due 2013 and the 8¾% seniors due 2016.

The trader also noted the UAW president's revelation that the union will target GM in next summer's talks.

Delphi better

Another trader meantime saw Delphi's 6½% notes due 2013 pushing up to 103.5 bid, although with no offers, from prior levels at 102.375 bid, 103.375 offered, "so they were definitely better," although the company's other paper, like its 6.55% notes that were to have come due this year, holding steady at prior levels around 105.5 bid, 106.5 offered.

The UAW announced Tuesday afternoon that it had reached agreement with Delphi on converting temporary workers which the parts company has recently hired to permanent status.

Delphi - which is currently restructuring under Chapter 11 - has hired temporary workers to replace thousands of UAW-represented workers who accepted buyouts as part of a three-way deal negotiated between Delphi, its former corporate parent, GM, and the UAW, aimed at cutting the company's cost structure. Delphi, spun off from GM in 1999, claims that the cost structure it inherited from GM when it became independent was a major factor in the company's eventual bankruptcy filing.

But while Delphi and the union are on the same page with regards to the temporary workers, broader talks with the union and with GM, aimed at lowering the company's wage-and-benefits structure, are still far from reaching a solution. UAW chief Gettelfinger said on his web chat session that little has been done on that front recently, claiming "[o]ur union has been available to meet with the corporation at any time, day or night, but honestly, at this time there has been very little discussion." He said that sooner or later, Delphi would have to deal with the union, or else face the prospects of a strike should it attempt to unilaterally impose a lower wage-and-benefits structure

Delphi has asked the U.S. Bankruptcy Court in Manhattan, which is overseeing its case, for permission to void the current labor agreement.

But there have been a number of postponements of hearings at which Delphi could have argued for the right to act unilaterally, which were instead pushed off to give the company more time to talk with the UAW and GM.

The next meeting with Judge Robert Drain is slated for Nov. 30. The bankruptcy court jurist has set a Jan. 7 deadline - subject to possible further extension - for a ruling on the labor contract request.

Dole dumped on bad numbers

Apart from the autos, a trader saw Dole Food Co.'s 8 % notes due 2013 fall 2 points to 91.5 bid, 92.5 offered, after the company reported worse-than-expected results.

He noted that while Wall Street was expecting revenues of $65 million, the actual figure for the quarter was closer to $45 million.

In the fiscal third-quarter ended Oct. 7, Dole lost $56.1 million - a sharp deterioration from its year-earlier $17.6 million quarterly profit.

Tembec up ahead of results

On the other hand, Canadian forest products company Tembec's bonds were seen up ahead of Wednesday's release of quarterly earnings.

A trader saw the Montreal-based company's 8 5/8% notes due 2009 at 67 bid, 68 offered, up "maybe a point," on the expectations of good numbers, although he also saw its 8½% notes due 2011 unchanged at 60 bid and its 7¾% notes steady at 58.

Besides the upcoming numbers, he also mentioned that Tembec announced a temporary restart of its Timmins, Ont. sawmill - which has been shut since July - for a period of approximately eight weeks. The restart is scheduled for Dec. 4, and will allow the existing raw log inventory currently at the site to be converted into lumber.

Calpine climb continues

Traders saw continued appreciation in Calpine Corp.'s bonds, although they saw no fresh news out on the bankrupt San Jose Calif.-based power plant operator, whose bonds have been steadily rising over the past several weeks.

A trader saw its 8½% notes due 2008 "a little higher" at 80 bid, 82 offered, while its 7¾% notes due 2015 were also up, at 42 bid, 44 offered.

Another trader saw those 81/2s advance to 82.5 bid, from prior levels around 81, and saw the company's 8½% notes due 2011 as 2 point winners at 66.5 bid, 67.5 offered.

Calpine did announce Tuesday that it has completed the sale of 10 turbines and generators and other miscellaneous equipment for $112 million, in a series of transactions as part of its ongoing program to sell excess turbines and related inventory.

TNT brings €730 million

Primary market news came in a trickle on Tuesday.

TNT Logistics will begin a roadshow in Europe on the Monday after Thanksgiving for its €730 million two-part notes offering.

The Amsterdam-based logistics company is offering €430 million of eight-year senior notes and €300 million of 10-year senior subordinated notes

Credit Suisse, Bear Stearns, Goldman Sachs & Co. and ABN Amro are joint bookrunners for the LBO financing.

Long-term phenomenon

With only one abbreviated session remaining before the four-day Thanksgiving break, sources said that for all practical purposes the primary market is closed until Monday.

Come Monday, however, sources expect the new issue calendar, presently at just over $2.5 billion, to start ramping up anew.

One sell-side source who spoke to Prospect News on Tuesday said that another $7 billion to $10 billion of new issuance could price before the end of the year.

This source added that 2006 is already in the record books as the biggest year ever for global high-yield new issuance, and added that global issuance for all of 2006 is expected to come to $165 million to $170 million.

The source added that issuers now seem to be looking at the leveraged finance markets as a "long-term phenomenon," meaning that the liquidity fueling the phenomenal volume seen in both the junk bond market and the leveraged loan market is not expected to dry up any time soon.

Post-Thanksgiving names

When pressed for suggestions as to which issuers might step forward soonest as the post-Thanksgiving primary market resumes business on Monday, sources mostly turned out empty pockets.

A buy-side source, however, said that several names were "thrown around" on Tuesday.

These included Allied Waste Industries, Inc., Owens-Illinois, Inc. and AES Corp.

The source added that if any of them did materialize with deals they would be "opportunistic financings" to extend debt maturities.

No fear

The buy-side source also professed that the "hot market" conditions which now prevail in the high-yield new issue market could remain in force for the foreseeable future.

"No one is afraid of anything right now," the source remarked, adding that defaults are low.

The buy-sider also said that much of the high yield volume recently seen is being driven by an intense interest among investors in structured CLO and synthetic CDO products.

Further, the source suggested that until default rates begin to climb, pushing spreads wider and lowering returns, this driving force can be expected to remain in play.

© 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.