Automakers sink as bailout hope dims; Thornburg little affected by default; Sabre, Burlington slip

By Stephanie N. Rotondo

Portland, Ore., Nov. 19 - The distressed bond market continued to be under pressure Wednesday, as an onslaught of more negative news weighed on the broad market.

Along with the Federal Reserve's comments that the economic downturn could last well into 2009, it seemed more and more unlikely that the government would step in to help struggling automakers. The Senate has met with the Big Three for several days, but an understanding has yet to be reached. As such, both General Motors Corp. and Ford Motor Co. saw their debt structures continue to decline.

Meanwhile, Thornburg Mortgage Corp. announced it had defaulted on its recent interest payment on its senior notes. But the news was largely expected and the bonds seemed little affected, traders reported.

In other negative news, consumer sentiment remained weak. That sent Sabre Holdings Corp. and Burlington Coat Factory Warehouse Corp.'s bank debt down as a result.

Six Flags Inc.'s bonds and bank debt closed the day a little softer, market sources said. But sources had no explanation for the move, other than "general market reaction."

"Everything is weaker," a trader said. "Everybody is going to file bankruptcy.

"Volumes are very light and most things off a bit today," he said.

"There is no real theme," said another trader. "A lot of it is opportunistic, but there isn't a lot of buying.

"There is very little stuff where people want to pay to play," he added.

No joy for automakers

The saga of the automotive industry continued Wednesday and was largely blamed for losses throughout the broad market.

As the Big Three met once again with lawmakers, it seemed that General Motors, Ford Motor and Chrysler were fighting an uphill battle - and their bonds reacted in kind.

A source saw General Motors' 7 1/8% notes due 2013 at 16 bid, down 8.5 points on the day, while Ford Motor's 7% notes due 2013 dropped about half that much to 48.5 bid.

At another desk, a trader quoted Ford's 5.70% notes due 2010 at 61 bid, 63 offered, its benchmark 7.45% notes due 2031 at 20 bid, 23 offered and its 5.80% notes due 2009 at 87 bid, 89 offered.

"It came right back down again after a small rally the other day," the trader said of the benchmark notes.

Meanwhile, the trader also saw GMAC LLC, GM's financing arm, losing more weight, down 5 points or more across the board.

"Some of that short stuff really got beat up," he said.

He pegged the 7¾% notes due 2010 at 51 bid, 53 offered, the 5 5/8% notes due 2009 at 60 bid, 65 offered and the 6 7/8% notes due 2011 at 38 bid, 40 offered.

"It's all the same," he said, of GM and GMAC's now-interchangeable bonds. "GMAC is almost in worse shape because they are the ones owed the money on the cars. And GMAC has very little access to cash."

"It's ugly no matter what," he added.

One trader said that GM's term loan fell 36.5 bid, 38.5 offered, down from 40.5 bid, 41.5 offered. A second trader put the loan at 37 bid, 39 offered, down from 39.5 bid, 42.5 offered.

Ford's term loan was also quoted lower by one trader at 35.75 bid, 36.75 offered, down from 38 bid, 41 offered. Meanwhile, a second trader quoted it at 35 bid, 37 offered, also down from 38 bid, 41 offered.

"Autos always tend to take it on the chin," the second trader added.

The Detroit automakers are facing continued opposition from the Bush administration regarding a $25 billion bailout. While Democrats have proposed a bill that would give the Big Three the funds to weather the economic crisis, they seem to lack the votes necessary to pull it off. Furthermore, Bush's people have repeatedly said that the funds from the $700 billion bailout plan are not for automakers, but for financial institutions in trouble. That said, if Congress does not pass the bill approving a $25 billion lifeline, then all bets are off.

During the legislature's lame-duck session, Senate Majority Leader Harry Reid of Nevada said he hoped a deal could be inked in the next few days.

"If we can't do it here legislatively, I would hope that the secretary of Treasury would listen loud and clear because they could take this into their own hands and do what I think is appropriate from their perspective," he added.

In response, White House press secretary Dana Perino said "there's no appetite for that."

Thornburg little affected

There was little reaction in Thornburg Mortgage's bonds after the Santa Fe, N.M.-based company said it defaulted on its 8% notes due 2013.

One trader saw the bonds offered at 20, speculating that the "bid is way lower."

I don't think that was unexpected, missing the coupon," he added.

Another source said the bonds were "still" in the19 bid, 20 offered range.

Standard & Poor's reacted to the news by downgrading the company's ratings. The agency said it seemed unlikely that Thornburg would pay the coupon within the 30-day grace period.

"Given the long-standing nature of the negotiations [with bank lenders] through this point, we feel that it will be difficult for Thornburg to finalize negotiations and make its payment," a group of S&P analysts led by Adom Rosengarten said in a press release.

However, in its own statement, Thornburg said it indeed hopes to make up the payment within the grace period and once it reaches an agreement with its lenders.

Sabre, Burlington lose steam

Sabre Holdings and Burlington Coat Factory Warehouse both posted sizable losses in trading on Wednesday as the overall consumer sector was beaten down on negative economic sentiment, according to a trader.

Sabre, a Southlake, Texas-based retailer of travel products, who saw its term loan drop at least 6 points to 37.5 bid, 42.5 offered, the trader remarked.

Burlington Coat Factory, a Burlington, N.J.-based retailer of branded apparel, saw its term loan fall around 6 points to 40 bid, 45 offered, the trader continued.

"Global macroeconomic news. Nothing is positive. Everything is negative to the consumer," the trader said in explanation of why the sector came under pressure.

One such example of bad economic news was the consumer price index results that were announced on Wednesday. According to the U.S. Department of Labor the consumer price index for all urban consumers decreased 1% in October, before seasonal adjustment.

Other names in the consumer sector that were down on Wednesday included Michael's Stores Inc. and Neiman Marcus Inc., but they at least fared a little better than Sabre and Burlington.

Michael's, an Irving, Texas, specialty retailer of arts, crafts, framing, floral, wall decor and seasonal merchandise for the hobbyist and do-it-yourself home decorator, saw its term loan drop about 3.5 points to 52.5 bid, 55.5 offered.

And, Neiman Marcus, a Dallas-based high-end specialty retailer, saw its term loan fall around 3 points to 64.5 bid, 67.5 offered, the trader added.

Six Flags slips

A trader said Six Flags' bonds were "moving a lot, all over the place" Wednesday, though there was no news to cause the activity.

The trader saw the bonds quoted wide early in the session, calling the markets "just ridiculous. That's what has become acceptable in this market."

He quoted the 12¼% notes due 2016 at 40 bid, 45 offered, the 9 5/8% notes due 2014 at 11 bid, 15 offered and the 9¾% notes due 2013 at 13 bid, 17 offered.

Another source placed the 9 5/8% notes at 12 bid, down 3 points on the day.

Meanwhile, the New York-based amusement park operator's term loan B was a smidge weaker at 61 bid, 64 offered.

The trader opined that the losses in the debt were largely due to "general market reaction."

Sara Rosenberg contributed to this article.

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