GM, GMAC, Ford continue declines; Harrah's loan slips, bonds steady; Sprint holds on despite numbers

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Nov. 7 - More earnings news came out Friday, but the distressed bond arena tried to shake off the freshest wave of bad news.

Traders called the day "scattered" and said volumes were thin. Some wondered if investors were backing off after two straight days of major declines in the equities.

"Everybody's been holding their breath all day," said one trader.

"After two straight days of the market getting kicked in the teeth, I think some people are just burnt out," said another.

The most topical names du jour were General Motors Corp., GMAC LLC and Ford Motor Co. Both GM and Ford released numbers during the session and the reports were not good. But while Ford said it had adequate liquidity to weather the economic storm, GM said that it could face a bankruptcy as early as the end of the year if it did not get some kind of aid. As a result, the Detroit automaker's bonds, as well as those of its financing arm, declined. But it was in the company's bank debt that the losses were really evident.

"It's all GM and GMAC and their impending death spirals," a trader said.

Meanwhile, Harrah's Entertainment LLC also put out its quarterly report. The gaming operator's bank debt dropped in response, but traders saw the bonds unchanged to even "fractionally better."

Sprint Nextel Corp. was also among the day's filers. The company continues to lose subscribers despite its efforts otherwise. Market sources saw the company's corporate debt finish the day unchanged to slightly lower.

GM, GMAC, Ford continue declines

Disappointing quarterly numbers and increased concerns about a potential bankruptcy filing sent GM's debt structure lower, traders reported.

GM's 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 44.5 bid, 48.5 offered, down 6 points on the day from 50.5 bid, 54.5 offered, the trader said.

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

In the bonds, a trader called GM's various issues down 3 to 4 points, with its GMAC unit following suit. The trader quoted the 8 3/8% notes due 2033 at 26 bid, 27 offered, the 7.2% notes due 2011 at 34.5 bid, 35.5 offered and GMAC's 7¾% notes due 2010 at 68 bid, 69 offered.

"I think the concern now is that it's all bad," the trader said of the company's many issues. Of the numbers, he added, "That shouldn't be a surprise. That has been crappy as long as I can remember."

At another desk, a trader called GMAC's 7.2% notes down 1 to 1.5 points around 35.5. He noted that most of the trades were odd lots.

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 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.

"Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business. Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless 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 of the foregoing," the company said.

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.

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," Rick Wagoner, chairman and chief executive officer, said 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.

Over at sector rival Ford, the Dearborn, Mich.-based company also came out with third quarter numbers on Friday, and since it too reported a sizable loss, the company's term loan softened, according to traders.

One trader had the term loan quoted at 47.5 bid, 49.5 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.

In the bonds, a trader pegged the benchmark 7.45% notes due 2031 at 27 bid, 28 offered.

"Ford doesn't seem to trade much anymore," he noted. "I think it's run its course."

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.

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 use 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," Lewis Booth, executive vice president and chief financial officer, said 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.

Harrah's loan slips, bonds steady

Harrah's Entertainment's term loan was yet another piece of debt to be negatively affected on Friday by earnings news. However, the casino operator's bonds were largely deemed unchanged to slightly better.

The term loan B-2 was quoted at 68.25 bid, 69.25 offered, down from Thursday's levels of 69 bid, 70 offered, a trader said.

Another trader called the 10¾% notes due 2016 "fractionally better" at 34.5 bid, 35.5 offered, versus levels of 33 bid, 34 offered previously. However, "they didn't change much on the back of the conference call; they stay right where they were," the trader said.

Another trader called the issue "pretty much unchanged at 34 bid, 34.5 offered.

"They had gotten kind of hammered as it was," he said.

The trader also saw the 5¾% notes due 2017 at 15.5 bid, 16 offered, unchanged to slightly lower, but "nothing dramatic."

"They didn't file for bankruptcy today and the bonds are in the teens," he said. "So they can't go much lower."

Yet another trader deemed the 10¾% notes "a smidge better" at 34 bid, 34.5 offered.

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 also said in it 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," Gary Loveman, chairman, president and chief executive officer, said 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.

Sprint holds on

Sprint Nextel's bonds ended unchanged to slightly lower on the back of its earnings release Friday.

A trader quoted the 6% notes due 2016 at 68 bid, 68.75 offered, down about a point from levels of 69 bid, 70 offered on Thursday. Another trader placed the paper at 68 bid, 69 offered, down from 70 bid, 71 offered previously.

For the third quarter of 2008, Sprint posted a loss of $326 million, or 11 cents per share, versus a profit of $64 million, or 2 cents per share, a year ago. Excluding one-time charges, the company said it would have come out even and, given that, analysts were expecting a profit of 3 cents per share. Revenue declined 12% to $8.81 billion, just below analysts' expectations. The company said it lost 1.3 million subscribers during the quarter.

Sprint is an Overland park, Kan.-based provider of wireless technologies.

Broad market mixed

Idearc Inc.'s 8% notes due 2016 were seen trading somewhat actively at 17 bid, 18 offered.

A trader saw Lazard Group LLC's 6.85% notes due 2017 at 65.5 bid, 66.5 offered.

"I have never seen Lazard paper pop up on a Trace run before," he said.

Unisys Corp.'s 12½% notes due 2016 fell "a few points" to around 61, the trader added.

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