General Motors crashes on liquidity concerns; Ford, Harrah's fall with numbers

By Sara Rosenberg

New York, Nov. 7 - General Motors Corp.'s term loan plummeted during Friday's trading session as the company revealed that it is facing a major liquidity crisis in the near term, and third-quarter earnings that showed hefty losses also helped to impact the loan.

Ford Motor Co. and Harrah's Entertainment Inc. were two companies that also came out with disappointing financials during market hours, which spurred their term loans to weaken in trading as well, while Calpine Corp.'s term loan held firm following its earnings results.

General Motors nosedives

General Motors' term loan dropped considerably lower during market hours as the company said that estimated liquidity during the remainder of the year will approach the minimum amount necessary to operate its business and will fall significantly short in the first two quarters of 2009, according to a trader.

The term loan was quoted at 44½ bid, 48½ offered, down six points on the day from 50½ bid, 54½ offered, the trader said.

"People trying to figure out how much cash they're burning through," the trader said.

On Sept. 30, cash, marketable securities and readily available assets of the Voluntary Employees' Beneficiary Association trust totaled $16.2 billion, down from $21 billion on June 30.

The change in liquidity reflects negative adjusted operating cash flow of $6.9 billion in the third quarter. During the quarter, the company drew the remaining $3.5 billion of its secured revolving credit facility and made $1.2 billion in payments to Delphi Corp. as required by agreements between the companies as part of Delphi's bankruptcy proceedings.

General Motors current plans not enough

General Motors said on Friday that it has identified $5 billion of incremental liquidity actions in addition to the $15 billion in liquidity initiatives it outlined in July, but even with implementing the planned operating actions that are substantially within its control, liquidity would still run out.

To date, $10 billion in internal operating actions have either already been completed or are on track for full execution by the end of 2009.

The company went on to say that the 2009 liquidity shortfall could be prevented if economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination thereof.

General Motors posts big third-quarter loss

Also helping to push General Motors' term loan lower was the release of third-quarter numbers that included a net loss of $2.5 billion, or $4.45 per share, compared with a net loss from continuing operations of $42.5 billion, or $75.12 per share, in the third quarter of 2007.

On an adjusted basis, net loss was $4.2 billion, or $7.35 per share, compared with a net loss of $1.6 billion, or $2.86 per share, in the same period last year.

Revenue for the quarter dropped to $37.9 billion from $43.7 billion last year, reflecting dramatic sales declines across the industry driven by unstable market conditions, instability in the credit markets and dramatic retraction in consumer demand.

"The third quarter was especially challenging for the auto industry. Consumer spending, which represents close to 70% of the U.S. economy, fell dramatically, and the abrupt closure of credit markets created a downward spiral in vehicle sales," said Rick Wagoner, chairman and chief executive officer, in a news release.

"The U.S. government's actions to help stabilize the credit markets and eventually ease the credit crunch are an essential first step to the economy's and the auto industry's recovery, but further strong action is required," Wagoner added in the release.

General Motors is a Detroit-based automotive company.

Ford drops on results

Ford also came out with third-quarter numbers on Friday, and since it, too, reported a sizeable loss, the company's term loan softened, according to traders.

One trader had the term loan quoted at 47½ bid, 49½ offered, down from 50 bid, 52 offered, while a second trader had the loan quoted at 48 bid, 49 offered, down from 50 bid, 52 offered.

For the third quarter, Ford reported a net loss of $129 million, or $0.06 per share, compared with a net loss of $380 million, or $0.19 per share, in the third quarter of 2007.

The company's third-quarter pre-tax operating loss from continuing operations, excluding special items, was $2.7 billion, down from a $194 million profit a year ago.

On an after-tax basis, operating loss from continuing operations, excluding special items, was about $3 billion, or $1.31 per share, compared with a loss of $24 million, or $0.01 per share, last year.

Revenue for the quarter declined to $32.1 billion from $41.1 billion in 2007 reflecting lower volume, the sale of Jaguar Land Rover, changing product mix and lower net pricing.

Ford announces additional initiatives

In addition on Friday, Ford revealed some supplementary actions to reduce costs and improve automotive gross cash as a result of the continued weakness in the automotive market and economic environment.

These initiatives include an additional 10% reduction in North American salaried personnel-related costs, a reduction in capital spending, a reduction in manufacturing, information technology and advertising costs, and a reduction of inventories globally.

In addition, Ford said that it would continue to explore divestitures of non-core assets and utilize equity-for-debt swaps and other incremental sources of financing to strengthen its balance sheet.

"Strengthening our balance sheet has been and remains a core element of our transformation plan," said Lewis Booth, executive vice president and chief financial officer, in a news release.

"We were fortunate to have gone to the markets at the right time two years ago to obtain significant liquidity to implement our plan and invest in the new products that will secure our future. We will continue to aggressively reduce costs and manage our cash with absolute discipline to ensure we have the resources to fund our plan going forward," Booth added in the release.

Ford is a Dearborn, Mich.-based automotive company.

Harrah's term loan dips

Harrah's Entertainment's term loan was yet another piece of debt to be negatively impacted on Friday by earnings news, according to a trader.

The term loan B-2 was quoted at 68 ¼ bid, 69 ¼ offered, down from Thursday's levels of 69 bid, 70 offered, the trader said.

For the third quarter, the company posted a net loss of $130 million, compared with net income of $244 million in the year-ago quarter.

Total revenues for the quarter were $2.65 billion, versus $2.84 billion in the comparable period last year.

Income from operations for the quarter was $350 million, compared with $577 million in the prior year.

Furthermore, adjusted EBITDA for the quarter was $634 million, down from $787 million in 2007.

Harrah's focused on conserving cash

Harrah's also said in its earnings release on Friday that because of current market conditions, keeping costs aligned with reduced levels of business activity and conserving cash are a priority.

"The economic upheaval weighing on the country continued to impact our results throughout the third quarter," said Gary Loveman, chairman, president and chief executive officer, in the release.

"While we're hopeful the federal government's recent actions to restore order to the financial markets may lead to an eventual economic recovery, there is no certainty as to its timing," Loveman added in the release.

Harrah's is a Las Vegas-based provider of branded casino entertainment.

Calpine holds steady

Calpine's term loan faired pretty well in trading, as the debt held firm after the release of quarterly financials, according to a trader.

The term loan was quoted at 79½ bid, 81½ offered, unchanged on the day, the trader said.

For the third quarter, Calpine reported net income of $136 million, or $0.28 per share, compared to net income of $3.794 billion, or $7.92 per share, last year.

Operating revenues for the quarter were $3.19 billion, compared to $2.324 billion in the third quarter of 2007.

And, adjusted EBITDA was $593 million for the quarter, up 17% from $505 million last year.

In addition, Calpine provided full year adjusted EBITDA guidance on Friday of $1.65 billion to $1.675 billion.

Calpine improves liquidity

During the third quarter, Calpine's liquidity position increased by $914 million to $1.6 billion and net cash provided by operating activities increased $685 million, or 268%, to $941 million over the same period in 2007.

This improvement was attributed to a $481 million increase in cash balances and a $506 million increase in exit credit facility revolver availability - driven by $324 million in return of cash collateral, $43 million in reductions in gas and power prepayments and $89 million in reclassification of restricted cash to unrestricted cash.

Following the end of the quarter, Calpine did draw $725 million under its revolver in order to reduce the risk of non-performance from the institutions that hold a revolving commitment in its corporate first-lien facility.

Calpine is a San Jose, Calif.-based power company.

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