GM, GMAC gyrate as bailout dies, then perhaps lives; Charter chokes on debt plan; new El Pasos hold their own

By Paul Deckelman and Paul A. Harris

New York, Dec. 12 - The Washington drama over the proposed auto industry bailout continued to make for a volatile day in that sector of the junk bond market, with General Motors Corp.'s bonds especially, and those of its 49% owned GMAC LLC auto loan financing arm, bouncing around crazily at mostly lower levels, since of the two big carmakers whose bonds regularly trade in Junkbondland - Ford Motor Co. is the other - GM, though larger than its Dearborn, Mich.-based domestic arch-rival, is by far the worse off of the two financially and in fact is in immediate danger of floundering absent a bailout.

GMAC's bonds, meantime were also being buffeted by investor angst about its expiring offer to swap a combination of cash, new bonds and preferred shares for its existing bonds - at a steep discount to their face value, of course - which heading toward its Friday afternoon early-tender deadline was expected to fall far short of the bondholder participation level it needed to raise enough capital to be allowed by the government to transform itself into a commercial bank eligible for a slice of the federal TARP bank bailout pie. However, there were signs that the company and its bondholders might stop the clock and keep negotiating on amended terms.

Elsewhere, Charter Communications Inc.'s bonds were seen well down, in busy trading, after the troubled St. Louis-based cable-TV operator said that it had hired Lazard LLC to open talks with the troubled company's bondholders, in hopes of doing something to trim its massive debt load - an action which also sent its shares sharply lower and caused Moody's Investors Service to slice its debt ratings and predict an imminent default.

Another issuer fighting to stave off default was Rouse Co. - but its bonds were up, and so were the shares of its parent company General Growth Properties Inc., after the shopping center owner reported success in retiring a big chunk of soon-maturing debt, while continuing talks on extending payment on another loan in order to avoid default.

With less than three weeks left in 2008, meanwhile, primaryside players have pretty much closed up shop for the year, with any new deals before the calendar turns its page thought unlikely, given the usual year-end lassitude combined this year with absolutely atrocious market conditions. The only recent new deal - this week's half-billion-dollar issue from El Paso Corp. - was seen continuing to hold the solid gains which the Houston-based energy transportation company's bonds notched after they priced, at a steep discount to par, on Tuesday.

Market indicators continue decline

The widely followed CDX High Yield 11 index of junk bond performance, which lost 3/8 point on Thursday, was seen to have declined by ¼ point on Friday, with a trader quoting it at 72¾ bid, 73¼ offered. The KDP High Yield Daily Index meantime dropped by 63 basis points to 46.92, while its yield rose by 14 bps to 17.64%.

In the broader market, advancing issues trailed decliners by a margin of six-to-five. Overall market activity, reflected in dollar volumes, was down nearly 21% from the pace seen in Thursday's session.

Traders said that levels were lower initially, taking their cues from the early fall in the automotive issues, particularly GM, on the news that efforts to pass a bailout bill in the Senate had failed on Thursday night, raising the specter that the troubled Detroit-based auto giant would run out of money and be forced into what was once virtually unthinkable - bankruptcy. GM and Ford's somewhat smaller rival, Chrysler LLC, was seen in pretty much the same boat.

However, a trader said, after that downside morning flurry among the auto credits, "it got quieter at the end of the day, when the White House got involved" with the Treasury possibly emerging as the lender of last resort to the carmakers under the controversial Troubled Asset Recovery Program. "People are trying to get this [auto bailout] done, so I think that added to the positive tone later on. " However, he said that the late-day market "was not overly active. It just balanced [the morning's negativity] out."

Another trader said the market was down pretty much all day, and joked that if participants were leaving early on a Friday afternoon, as some did, "then it must be summer."

Yet another said that the day started with GM and likely Chrysler "looking like they would have to file," once the Congressional bailout initiative crashed and burned. "Then there was news that the government was going to do something, so people just stopped and there was no activity around later on."

He characterized the session as "weird. It was a quiet day. Basically, all of the news is about all of the malfeasance going on, listening to people who started with billions of dollars," he said, pointedly referring to the stunning arrest of Wall Street veteran Bernard Madoff, with federal officials accusing the former Nasdaq chairman of bring the mastermind behind an alleged $50 billion investment swindle.

"Volume is drying up with the approach of the holidays," a syndicate official added.

In the equity markets, from where junk frequently draws its inspiration and takes its cues, the bellwether Dow Jones Industrial Average, after starting the day off well to the downside and trading there for the first few hours, moved back into positive territory later on, spurred on by the White House's announced willingness to use TARP funds to help the carmakers - something it had earlier opposed, but now did a U-turn on to stave off a possible Big Three bankruptcy filing. The Dow closed up 64.59 points, or 0.75%, at 8,629.68. Broader market gauges were also up, with the Standard & Poor's 500 up 0.70% and the Nasdaq doing considerably better than that, up 2.18%.

Autos 'all over the map'

With the auto sector being whipsawed by the rapid-fire developments coming out of the nation's capital - first the Thursday night failure of the Senate to pass the bailout bill, as Republicans and Democrats clashed over the nature of concessions to be asked of the United Auto Workers union, and then, on Friday, the White House declaration that with the bailout dead on Capitol Hill, and given "the current weakened state of the U.S. economy, we will consider other options if necessary - including use of the TARP program - to prevent a collapse of troubled automakers," - the sector's bonds were being seen "all over the map," a trader said.

A trader saw General Motors' benchmark 8 3/8% bonds due 2033 down 4 points at 13.5 bid, 15.5 offered, and saw Ford Motor Co.'s 7.45% bonds due 2031 lower by 3½ points at 20.5 bid, 23.5 offered. He saw GMAC's 8% bonds due 2031 unchanged to down ½ point at 28 bid, 30 offered.

A market source at another desk saw the GM 8 3/8s heavily traded, mostly in round lots, with over $45 million changing hands, the most of any junk issue. Those bonds, which had ended Thursday around the 16.5-17 mark, opened at 11 and then plunged down to a 9-10 level early as investors digested the news of the Senate bailout bill's failure. However, they came off those lows to end around 14.5-15 as it looked like the White House would step in to throw GM a lifeline.

The source also saw GMAC's 8% bonds open down about 3 points around the 24 level, and then continue to cascade as low as 20, before also coming off their lows to end around 25.5, down around 2 points on the session. Most trading in the name was in odd lots.

However, another trader who called the automotive names "extremely volatile" on all of the news saw the GM and GMAC paper actually ending higher. GMAC's bonds, he said were at some points during the day "down significantly" from Thursday's levels, maybe 4 points," noting that its debt exchange offer was slated to expire, apparently unsuccessfully, Friday afternoon. However, as the day was ending, he saw the 5.85% notes due in January "probably up a couple of points." He said the bonds "showed weakness from [levels seen] two days ago, but today were maybe up a point" at 79 bid, 81 offered.

He also saw the longer GMACs unchanged, with the 8% notes at 26 bid, 28 offered.

He said GM's bonds "started off extremely weak, with the benchmark 2023 and 2033 issues starting the day in a 10-12 range," although he added that "they did move up throughout the day, especially when the news came out that the Treasury would be there to stand up and make sure everyone was taken care of. There was a slight bump from there," with the 8 3//8% 2033 bonds at 19 bid, 21 offered, which he called up 2 points on the day. The bonds were "all over the place" intraday.

GMAC, another trader said "was absolutely amazing. I was trying to do stuff in it and there was just no volume," at least in the long bonds. "Short stuff was where the volume was."

While he saw "virtually nothing" happening with the 8s, the company's floating-rate notes due on May 15 were trading around 64, well up from 58, though with not much volume. He saw the 5 5/8% notes also due in May, were in the high 50s-low 60s, again with not much volume.

Besides the tribulations of its 49% owner, GM, GMAC's bonds have been roiled this past week by investor unease with the financing company's future - especially since its efforts to get bondholders to exchange $26 billion of GMAC bonds and about $12 million of bonds issued by its Residential Capital LLC subsidiary for a lesser amount of cash, new debt and new preferred shares so that it can meet federal capital requirements for conversion to a commercial bank and access to the TARP program, appeared to be falling far short of its goal of 75% participation, even with a three-day extension of the early tender deadline to 5 p.m. ET on Friday. GMAC said on Wednesday that if the threshold were not reached, it would withdraw its commercial bank application.

However, there were signals on Friday that talks between GMAC bondholders and the company's controlling owner, 51% shareholder Cerberus Capital, might continue talks aimed at keeping the bank plan alive even past the official exchange offer deadline (see related story elsewhere in this issue).

Charter hammered down on debt plan news

Apart from the autosphere, Charter Communications' slide was the major movement on Friday, with the bonds sharply lower on the company's hiring of an investment bank, Lazard, to dicker with the holders of its over $20 billion of bond debt on cutting that burden down.

A trader saw Charter's 11% notes due 2014 down 5 points on the day on the Lazard news, pegging the bonds at 10 bid, 12 offered.

Another saw the Charters down 3 points to 8 points on the day, with the 10 ¼% notes due 2013 at 20 bid, 23 offered, and its 8 3/8% notes due 2014, "one of the higher ones," ending off 6 points at 58 bid, 60 offered.

A trader said Charter was "not sure if they're going to go into bankruptcy, or whatnot, that was the general gist of the news. They're trying to raise some money and figure out ways to get out of covenant [problems] they have and figure out how to have more cash on hand to keep the business going."

At another desk, a market source saw Charter's 8% notes due 2012 finish at 60 bid, down more than 11 points on the day.

Its Nasdaq-traded shares fell more than 14% Friday on the news.

Charter said it was negotiating with its bondholders in hopes of increasing its financial flexibility.

Moody's Investors Service cut Charter's probability of default rating two notches to Ca, and warned that the rating "reflects Moody's expectation that default is imminent and that a restructuring of the company's balance sheet via some form of a much more material distressed exchange and/or bankruptcy filing is likely to occur pre-emptively in 2009."

Rouse bonds arouse investors

Shopping center REIT Rouse Co.'s 5 3/8% notes due 2013 pushed upward by 3 points to 34 bid, on top of a 2 point gain on Thursday, helped by the news that parent company General Growth Properties Inc. avoided a default on almost $900 million of debt. The Chicago-based company completed approximately $896 million of mortgage loans with maturity dates ranging from five to seven years.

It then used the proceeds to retire a $58 million Rouse bond that matured Thursday and $814 million of debt scheduled to mature next year.

It was also in talks Friday aimed at extending a Friday payment deadline on another $900 million of loans. Equity investors were meanwhile cheered by the news, pushing its stock up as much as 72% in intraday trading before finishing up a still-respectable 25% on the session.

El Paso holds gains

A trader saw El Paso Corp.'s new 12% notes due 2013 at 93.25 bid, 94 offered, which was perhaps ¼ point tighter on the bid side versus Thursday's close, but he noted that the bonds were up more than 4 points since their pricing on Tuesday - the first new deal to come to fruition in the junk market in almost a month.

The Texas energy exploration, production and transportation company brought $500 million of the bonds to market on Tuesday at a deeply discounted price of 88.909, giving investors a 15.25% yield to convince them to jump back into the first new junk deal in nearly a month. After pricing, the new bonds immediately pushed up to around the 91 bid area later Tuesday, and had firmed to bid levels around 92.5-93 on Wednesday and 93-94 on Thursday, traders said.

End of a long drought

There was no primary news after the new deal sector saw one corporate deal clear the market during the week beginning Dec. 8.

El Paso Corp. priced a $500 million issue of 12% five-year senior notes (Ba3/BB-) at 88.909 to yield 15¼% on Tuesday.

It was the first new corporate deal to price in the high yield primary market in 39 days, since Oct. 30's MGM Mirage deal, and it ended the longest drought in the new issue market since 1991, according to a syndicate source.

The El Paso Corp. deal was "a market-reopening event," the source said.

The last deal

El Paso was probably 2008's last deal, a syndicate official said shortly after Friday's close.

However this source has also heard that Kansas City Southern (NYSE: KSU) is expected to show up with a debt refinancing deal to address a $200 million maturity coming up in June.

On Thursday a high-yield mutual fund manager said a deal from Kansas City Southern is expected soon, but was unable to specify whether it would happen before or after year-end.

The syndicate source said that, as a practical matter, Monday and Tuesday are likely the last days to get a drive-by deal done.

"Anything beyond that is doubtful," said the official, adding that Dec. 15 (Monday) is a traditional cut-off date in the primary market.

Of course the 2008 primary market is anything but traditional, the source observed.

"We're seeing lighter and lighter secondary market volumes every day as we get closer and closer to the end of the year," the official said.

This source's forward calendar is clear for the remainder of 2008.

However, given a modicum of stability in the interim, early January could be an active period in the primary market, according to this syndicate source.

"We looking at a few situations for early January, assuming things go okay between now and then," the source said.

GMAC exchange

With the 5 p.m. ET Friday deadline for GMAC LLC's bond exchange and the bid to achieve bank holding company status fast approaching the deal still appeared do-able to the manager of a hedge fund which owns GMAC bonds.

That's because a bailout of General Motors Corp. could entice Cerberus Capital, which controls GMAC, to put up the $2 billion in preferred stock that GMAC bondholders are insisting upon to get the exchange deal across the finish line.

GMAC's CDS reflected a belief that the White House will step in with meaningful assistance for GM, according to a high-yield market source who added that GMAC CDS tightened throughout the day.

After having gotten as wide as 58 points up front, they ended the day at 52 points up front, and were thus 6 points tighter on the session, the source said, adding that cash bonds likely improved as well (see related story in this issue).

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