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Autos, other bonds in "relief rally"; Seneca Gaming deal prices
By Paul Deckelman and Paul A. Harris
New York, May 18- After several sessions of almost universally lower prices - led downward by Collins & Aikman Products Co. and its automotive sector peers - the high yield secondary turned a sharp corner Wednesday and headed back upward, with those same auto issues now leading the way, traders said.
In the new-deal arena, Seneca Gaming Corp. finished in the money, successfully selling an add-on issue of seven-year notes.
A report from the U.S. Labor Department that core inflation was unmoved during April, in the face of economists' forecasts that it would rise, sparked a rally in the 10-year Treasury as well as in the stock market on Tuesday, according to sources.
And for a change the high-yield market managed to ride the tide higher.
One source said that junk was up ¼ to ½ point during the morning, and generally hung on, with most sectors bid up, including the embattled automotive sector.
However, sources added, the high yield ranks were thinned on Wednesday owing to Bear Stearns' 14th Annual Global Credit Conference in New York.
Seneca at wide end of talk
The only primary market news on Wednesday came from Seneca Gaming Corp., of western New York, which priced a $200 million issue of senior notes due May 1, 2012 (B1/BB-) at 96.50 to yield 7.914%.
The Merrill Lynch & Co. and Banc of America Securities-led deal came at the wide end of the 96.50 to 97.50 price talk, and will yield over 66 basis points more than the original notes.
The new notes comprise a mirror tranche to the issue of 7¼% notes due May 1, 2012 that the company originally priced in a $300 million issue at par on April 29, 2004.
Seneca Gaming initially intended to tap those existing notes in the current transaction. However the issue price of the new notes, which was discounted to 96.50 on a dollar basis, exceeded the fungibility threshold of the original notes, and hence the bonds that priced Wednesday will trade under a new Cusip number.
When the new Seneca Gaming 7¼% senior notes due 2012 were freed for secondary dealings, a trader saw the notes firm smartly to 97.75 bid, 98.75 offered from their 96.5 issue price earlier in the session.
Biggest deal in over a week
Even though Seneca Gaming's $200 million issue is by no means a big one it is in fact the biggest issue to price in the high-yield new issue market in over a week.
On Tuesday, May 10, Alliance One International, Inc., the entity created from the merger of leaf tobacco dealers Dimon, Inc. and Standard Commercial Corp., priced a downsized, restructured $415 million two-part deal.
That leaves Equity Inns $65 million
In the wake of Seneca Gaming the only deal on the forward calendar expected to price this week is the Equity Inns Partnership LP $65 million offering of seven-year senior unsecured notes (B1/B+), via Morgan Keegan.
Mitch Collins, the vice president and chief financial officer of Equity Inns, Inc., told Prospect News earlier in the week that the deal would only be taken on the road if necessary. Collins also expressed optimism, despite the present sell-off in the junk market, that the deal could get done because, he said, lodging is perceived by investors to be a defensive play, and the small size of the deal would work in its favor, given the current market conditions, because the order book would be less difficult to fill than would be the case if the deal size was $200 million or above.
The Germantown, Tenn.-based real estate investment trust, with interests in hotel properties, will use the proceeds for debt refinancing, acquisitions and for general corporate purposes.
Focused squarely on liquidity
A consensus seemed to be building on Wednesday among sell side sources: all eyes are now on the liquidity of the high yield asset class.
One source told Prospect News that the preponderance of negative flows from the high yield mutual funds, plus rumors of hedge funds unwinding big positions, along with rumors that institutional players such as pension funds and insurance funds may be heading for higher credit ground, all adds up to a liquidity picture that is uncertain at best.
One week ago AMG Data Services reported a record-tying 13th consecutive outflow from the high yield mutual funds.
According to a Prospect News analysis of AMG numbers that string of outflows totals $6.098 billion out of the $7.022 billion of outflows seen thus far in 2005.
And another outflow report on Thursday would set a new record for consecutive negative flows from the high-yield mutual funds.
Auto names gain
Back among the established issues, the trader said, "finally, we got an up day - and it's been quite a while since we've seen one of those."
He saw the battered auto group as one of the winners, with the biggest loser of late, Collins & Aikman, higher for a second consecutive session, following the Troy, Mich.-based automotive interior components manufacturer's Chapter 11 filing earlier in the week.
The company's 10¾% senior notes due 2011 - which had been beaten down all the way into the 30s from prior levels in the mid 60s on the company's revelations last week of its dire financial straits, but which had turned upward after Tuesday's Chapter 11 filing, to finish at around 41 bid, 42 offered, trading flat, or without their accrued interest - continued to climb on Wednesday to 43 bid, 44 offered, trading flat.
"It showed you the kind of day it was, when even a Chapter 11 name can go up two points," the trader noted.
Among the other automotive names seen coming along for the ride, he said, were Delphi Corp., whose 6½% notes due 2013 were two points better at 72 bid, 73 offered; Visteon Corp., whose 8¼% notes due 2010 were also at that same 72 bid, 73 offered level, although they were up five points from Tuesday's 67 bid, 68 offered finish; and ArvinMeritor Inc., whose 8¾% notes due 2012 were up a deuce at 90.5 bid, 93.5 offered.
Dura Operating Corp.'s 8 5/8% senior notes due 2012 moved up to 86 bid, 86.5 offered from prior levels offered at 84, while the Rochester Hills, Mich.-based automotive systems maker's 9% subordinated notes due 2009 went from being offered at 60 on Tuesday to 61.5 bid, 63 offered Wednesday. Dana Corp.'s 6½% notes due 2009 improved to 90.5 bid from 89.5.
Exide fails to join rally
One of the few automotive names he did not see gaining any traction was Exide Technologies, which had been one of the junk market's big losers on Tuesday, when its 10½% notes due 2013 fell some 10 points on the session into the low to mid 70s, in the wake of the Lawrenceville, N.J.-based battery maker's disclosure of its likely breach of several financial covenants in its senior credit facility.
He noted that the company had held a conference call after the market had closed on Tuesday, during which it outlined for investors and analysts how the anticipated breach had come about, and, more germane, what Exide intended to do about it (see related story elsewhere in this issue).
The trader saw the company's bonds opening around 74 bid, 75 offered, up perhaps a point from their close on Tuesday, but by the end of trading, he said, the bonds had come off those highs to finish at 72.5 bid, 73.5 offered.
Another trader also saw the Exide bonds up two or three points on the open, and "they got as high as 75, but then they dropped [back] down" to end at 72.5 bid, 73.5 offered.
Yet another trader saw the Exides "starting at 72 bid, 74 offered - and ending at 72 bid, 74 offered" after first having gotten as good as 76 and having fallen as low as 71 during the day.
Exide's Nasdaq-traded shares - which had plunged some $4.27 (38.30%) on Tuesday - dropped an additional $1.55 (22.53%) to $5.33, on volume of 17.4 million shares, more than 32 times the usual turnover. Over the past two sessions, the shares have lost more than half of their value.
But Exide was pretty much the exception to the rule on Wednesday. The second trader characterized the session as "a relief rally," in line with a strong rise in equities following the release of benign April consumer price data and continued easier world oil prices - the Dow Jones Industrial Average rose 132.57, or 1.28%, to close at 10,464.45 and the broader indexes were up as well, all for a third straight session. In junk bond land, he said, "the market was basically strong across the board."
"It was just a firm market across the board," he declared.
Steel gains
While auto issuers were generally heading upward, a sector that did even better, the trader said, was steel, "one of the biggest gainers," with AK Steel Corp.'s bonds leading the parade. He saw its 7¾% notes due 2012 move up to 88 bid, from prior levels around 86, while the Middletown, Ohio-based specialty steelmaker's 7 7/8% notes due 2009 firmed to 93 bid from 90.5 offered.
Another trader saw the AK 73/4s move up to 87.75 bid, 88.75 offered from 85. He saw Oregon Steel Mills Inc.'s 10% notes due 2006 a point better at 107 bid, 108 offered.
Paper strong
Another area of improvement, this trader said, was the paper and packaging companies, with Abitibi-Consolidated's 6% notes due 2013 rising to 83 bid, 84 offered from 81.5 bid, 82 offered; Bowater Inc.'s 6½% notes due 2013 gaining two points to 89 bid, 90 offered; and Tembec Industries' 8½% notes due 2011 also two points better at 75.5 bid, 76.5 offered.
Crown Castle jumps on tender news
Crown Castle International Corp.'s 7 ½% notes due 2013 were up around five points to just below the 114 level, with the Houston-based communications antenna tower operator expected to take those notes out at that level using the proceeds of a new securitization financing deal.
All told, the trader said, "we had a good tone today, and a good market. The question is - will it continue?"
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