GM ends mixed on sale news; VeraSun bonds drop as corn rises; MGM notes pressured by downgrade

By Stephanie N. Rotondo

Portland, Ore., Oct. 22 - The distressed bond market finished the mid-week session largely weaker, traders reported Wednesday.

"It's an ugly market out there," a trader said, adding that "panic selling" was pushing the market down.

"Nobody is buying anything," said another trader. "Buyside guys are not doing anything, except trying to stay alive.

"[Bid lists] continue to initiate sales, but there is nowhere to sell it," he added.

In the news, General Motors Corp. announced that it was looking to sell off its ACDelco unit. The automaker's bonds ended mixed - though largely weaker - on the day. But not all were pessimistic about the sector's future.

Meanwhile, VeraSun Energy Corp.'s bonds were "down significantly," a trader said, losing as much as 5 points. VeraSun, like other ethanol producers, have been under pressure due to the rising cost of corn and the viability of the industry has thus been called into question.

A downgrade sent MGM Mirage's bonds down, albeit slightly. The downgrade reflected, among other things, market conditions that have caused the once thought to be "recession-proof" sector's revenues to decline.

Primus Telecommunications Group Inc.'s bonds were offered "everywhere," a trader said. But investors did not seem keen to pick up the company's debt. One trader opined that the lack of interest was due to the belief that the company will enter bankruptcy.

GM mixed on sale news

General Motors' debt was mixed on the day, following the announcement that the company might sell off its ACDelco parts unit.

A trader called GM's benchmark 8 3/8% notes due 2033 down half a point at 26 bid, 28 offered. Another trader also saw the issue slide half a point to 28 bid, 29.5 offered. The second trader pegged the 8¼% notes due 2023 at 24.5 bid, 26 offered, up a point.

Detroit-based GM said in a statement that it hired Merrill Lynch to assist with the potential sale of the replacement parts business. The sale is part of the automaker's plan to raise $4 billion through asset sales. The company is also reportedly looking at unloading its Hummer unit, a French parts factory and its medium-duty truck business.

The news of the sale comes as chatter of a possible merger with Chrysler LLC persists, along with concerns about declining auto sales. Both GM and its rival, Ford Motor Co., have seen their debt wobble back and forth for months, but the bonds are currently near their lowest levels.

Ford's benchmark 7.45% notes due 2031 were seen down anywhere from half a point to 1.5 points. One trader quoted the issue at 27 bid, 29 offered while another placed the paper at 29 bid, 31 offered.

However, while most of the market is viewing the automotive industry as a sinking ship, some have expressed optimism.

"I think people will figure out that GM and Ford might be a little bit undervalued right now," said a trader, citing reports that the companies have enough cash to at least get through 2009.

VeraSun bonds drop

Ethanol was once touted as the fuel of the future. As corn prices climb, however, some see the industry falling.

"It's dead, it's over," said one trader of the sector.

If current bond levels of ethanol producers, such as VeraSun, are any indication, the trader might have a point.

The trader called the company's subordinated debt, the 9 3/8% notes due 2017, at 16 bid, 18 offered.

Another trader called the bonds "down significantly," its 9 7/8% notes due 2012 at 50 bid, 52 offered, 5 points weaker.

At another desk, a trader saw the subordinated paper at 15 bid, 17 offered and the senior debt at 49 bid, 51 offered. He noted that not that long ago, the senior bonds were trading around 88.

Recently, the Financial Times did some research and found that ethanol investors, such as Bill Gates, have lost billions of dollars. Six of the nation's biggest ethanol producers have posted losses totaling more than $8.7 billion in 2006.

Earlier this year, ethanol companies were further pressured when floods ravaged the Midwest, the largest corn-growing region in the country. Destroyed crops sent the price of the commodity skyrocketing, which in turn affected those companies' bottom line.

MGM weighed by downgrade

MGM's bonds headed lower after Fitch Ratings downgraded the casino and hotel operator.

A trader pegged the 7.5% notes due 2016 at 67 bid, 68 offered. Another saw that issue down a point at 66 bid, 68 offered.

Fitch cut its issuer default rating on MGM to BB- from BB, its senior notes to BB- from BB and senior subordinated debt to B from B+.

Fitch attributed the downgrade to market conditions that have weighed on the gaming sector as a whole. The agency also cited the company's refinancing risk as its tries to complete its CityCenter project, as well as refinance more than $1 billion in debt over the next year.

In the rest of the gaming arena, Trump Entertainment Resorts Inc.'s 8½% notes due 2015 were called unchanged at 24 bid, 26 offered.

Primus offered, but no takers

A trader said Primus Telecommunications Group's bonds were "offered everywhere," but there were few, if any, takers.

"They are going out of business, that's why," said another trader. "They are one of the many companies that will not make it through this crisis."

The first trader said the 14¼% notes due 2011 were offered at 70, down from the "high-80s not too long ago." The 3¾% convertible notes due 2010 were offered at 45, the 8% notes due 2014 at 24 and the 12¾% notes due 2009 at 75.

Broad market mostly lower

A trader quoted Lehman Brothers Holdings Inc.'s senior paper, like the 6 7/8% notes due 2018 at 11.25 bid, 12.25 offered, while another pegged the debt at 9 bid, 11 offered, down a point.

Washington Mutual Inc.'s senior holding company paper was called unchanged by the first trader at 65 bid, 66 offered. The second trader, however, deemed the bonds up a point on the day at 63.5 bid, 66.5 offered. Still, he said that the debt "did some weird stuff" during the session.

The trader said the bonds opened weaker at 62.5 bid, 66 offered, then proceeded to fluctuate throughout the day.

"There was definitely some intra-day movement," he said.

GMAC LLC's 8% notes due 2031 fell a point to 37 bid, 38 offered.

Bon-Ton Stores Inc.'s 10¼% notes due 2014 "seemed to have found a floor," a trader said, at 17 bid, 18 offered.

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