Ford's foibles put focus on Fed-Mo, other distressed autos; Winn-Dixie keeps rising on store-closure plan

By Paul Deckelman and Sara Rosenberg

New York , June 22 - The auto sector was being watched extra carefully on Wednesday as some were expecting fallout from Ford Motor Co.'s announcement that it reduced earnings guidance - but to the surprise of many, distressed auto names in general felt better bid during the session, and Federal-Mogul Corp.'s bank debt in particular actually saw a rise in levels.

Also on the upside for a second consecutive session were the bonds of Winn-Dixie Stores Corp., with investors apparently confident that the bankrupt Jacksonville, Fla.-based supermarket chain operator's plans to close a third of its stores, get out of some of its traditional long-time markets and cut over 22,000 jobs would be the kind of surgery the company needs to ultimately emerge from Chapter 11.

Ford announced Tuesday that it expects that results from its core North American vehicle operations will be weaker going forward and lowered its full-year earnings guidance sharply to a level of $1 to $1.25, down from guidance of $1.25 to $1.50 a share that it issued in April, and well down from its original projections of $1.75 to $1.90 per share, all excluding special items.

That caused Ford's own bonds to fall about two to three points on the day, and led Moody's Investors Service - which for the moment still rates Ford as a barely investment-grade Baa3 - to put it under review for a possible downgrade to junk status.

But that bad news, oddly, failed to drag down the bank debt or bonds of some of the most hard-hit names in the auto supplier sector - those who are already bankrupt.

For instance, Federal-Mogul's revolver was trading stronger by about a quarter to a half a point throughout the day, bank debt traders said, with levels closing out the session around 89.75 bid, 90.75 offered, a trader said.

"Ford's news came out [Tuesday] night. We thought it might push autos down - but it seems like our stuff held in there pretty well," the trader added, particularly the bankrupt, asbestos-challenged Southfield, Mich.-based maker or brakes and other auto parts.

A trader in distressed bonds, asked to gauge the impact the Ford news - and the subsequent threats by both Moody's and Standard & Poor's about likely further ratings downgrades - was having on the bonds of distressed auto-sector companies, replied in one word.

"Nothing."

He saw Collins & Aikman Product Corp.'s 10¾% senior notes due 2011 as having moved smartly up from Tuesday's closing level at 39 bid, 41 offered, to reach a zenith of 42.5 bid, before dropping back a little to end at 41.5 bid, still up more than two points.

At another desk, a market source saw those bonds finishing at 41.25 - although he estimated that was not much changed from where they had been - but did see the bankrupt Troy, Mich.-based automotive interior components supplier's 12 7/8% subordinated notes due 2012 as having gained a point on the day, moving up to six cents on the dollar from a nickel previously.

However, Dura Operating Corp.'s 9% notes due 2009 were seen by another source to be about a point weaker at 74 bid.

Ford's own bonds were down about two points on the session, with its benchmark 7.45% notes due 2031 seen having fallen to about 81.5 bid from 84 previously, particularly after Moody's announced that it was putting the Baa3 bonds and bank debt on watch for a possible downgrade to junk status, which would follow S&P's move last month knocking the carmaker's credit down to a high-junk BB+.

Ford said Tuesday that it was reducing its full-year earnings per share guidance for 2005 to the $1.00 to $1.25 per share range from previous higher levels, attributing the changed guidance to a weaker outlook for vehicle sales and continued supplier-related challenges at its North America automotive operations.

However, the Dearborn, Mich.-based auto giant did raise its second-quarter earnings guidance to a range of $0.30 to $0.35 per share, excluding special items, from a range of breakeven to $0.15 per share - although this was primarily because of a reduced tax-rate assumption and stronger-than-anticipated results from Ford Motor Credit, its financing arm, rather than because of any good news in its basic business of selling cars and trucks.

"Although we have increased our earnings guidance for the second quarter, challenges continue to mount, especially in our North America automotive operations," Don Leclair, Ford's executive vice president and chief financial officer, said in the company announcement. "We're taking steps immediately to reduce further our salaried-related costs this year; these are a continuation of a series of actions we plan to take to address our operating challenges. We remain committed to improving our cost structure, optimizing our global footprint, and making essential investments for the future."

Winn-Dixie gains continue

Elsewhere, Winn-Dixie's 8 7/8% notes due 2008 were on the upside for a second consecutive session. Those bonds had shot up about two points on Tuesday, after the company revealed its plans to cut operations back to a more affordable level, and on Wednesday a trader saw those bonds push as high as 58 bid, 60 offered, a four point gain on the session.

At another desk, a market source quoted the bonds up a little more conservatively, at 56 bid, 58 offered, up a deuce.

Winn-Dixie was forced into bankruptcy in February due to its inability to compete profitably against larger rivals such as Wal-Mart Stores Corp., which has aggressively opened its huge "superstores," which include a supermarket section, in many of Winn-Dixie's traditional markets across the southern United States.

On Tuesday, Winn-Dixie said that it will cut 22,500 jobs, or 28% of its work force, including 500 headquarters jobs, and close 326 stores, or 35% of its total outlets, under its proposed Chapter 11 reorganization plan.

Winn-Dixie - in operation since 1925 and a fixture in neighborhoods throughout the South - will cease operations in North and South Carolina, Virginia and Tennessee, and will meanwhile trim its business in its home base in Florida, as well as in Alabama, Mississippi, Louisiana and in Georgia, where it will exit the Atlanta market.

It will also exit a number of other long-time markets, including number of larger markets, including Augusta and Savannah in Georgia, Charlotte, and Raleigh-Durham N.C., Chattanooga, Tenn., and Charleston, S.C., among others.

The turnaround plans also involves the company's exit from a number of food-processing businesses, including six dairy plants, a pizza plant in Montgomery, Ala., and a Georgia-based plant that produces soda, juices and condiments; however, it said that if it could not find buyers for those operations, it would continue to operate two of the dairies and keep the beverage plant open, but would simply close the others.

Calpine 2nd lien loan up

In other news, San Jose, Calif.-based Calpine Corp. saw its second-lien bank debt get a boost in Wednesday's secondary loan market, with levels rising by about a point during the session, according to a trader.

The paper was quoted at 83.5 bid, 84.5 offered by the end of the day.

"There was news that [Warren] Buffett's Berkshire [Hathaway Inc.] will invest a bunch of money in the U.S. energy sector," the trader said explaining that this could have created more focus on the energy sector in general and been the impetus behind Calpine's gains.

Atlanta-based Mirant Corp., however, saw its 2003 paper trade at unchanged levels during the session of around 76, the trader added.

A bond trader concurred, pegging Mirant's 2½% convertible notes at 77 bid, 79 offered, unchanged, with other bonds, such as its 7.40% notes due 2004 and 7.90% notes due 2009, perhaps a point better.

"There was paper trading at those levels," he said, "but not really moving around" in price.

Adelphia higher

Another bankrupt name which was moving a bit, however, was Adelphia Communications Corp., whose 10 7/8% notes due 2010 were estimated by a market source to have gained two points on the session, to finish at 87.5 bid, while its 9 7/8% notes due 2007 were seen up ¾ point to 87.25, and its 10¼% notes due 2011 were half a point better at 89.5.

A trader saw its 10¼% notes due 2006 up a point at 85 bid, 87 offered.

Another market source saw the 9 7/8s up more than two dollars at 88.5 bid, although the bankrupt Greenwood Village, Colo.-based cable operator's Century Communications 8 7/8% notes due 2007 were seen off several points from recent levels, around par.

There was no fresh news seen out on the company, traders said, although one opined that Adelphia was benefiting from a renewed focus on the cable sector, in the light of plans by the controlling Dolan family to take Cablevision Systems Corp. private.

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