WaMu slips on hearing postponement; GM, GMAC mostly lower; Level 3 downgraded on convertibles tender

By Stephanie N. Rotondo

Portland, Ore., Nov. 24 - The distressed bond market continued its weakening trend Monday, despite a decent size rally in the equities.

Traders said investors remained cautious and trading volumes were on the thin side.

"More traded in the last hour than in the first five hours of the day," remarked one trader.

Washington Mutual Inc. senior holding company debt fell as much as 2 points on the day, market players reported. The postponement of the company's stipulation hearing - brought by the FDIC - was touted as the reason for the losses.

Meanwhile, General Motors Corp. and its financing arm, GMAC LLC, continued to make headlines. GM is reportedly looking at cutting debt, as well as reworking its relationship with GMAC, in its efforts to weather the financial storm. GM is also working with other Detroit automakers to convince federal lawmakers that a $25 billion bailout is necessary to its viability. For the most part, traders saw both names continuing to be weak.

Moody's Investors Service slashed its rating on Level 3 Communications Inc., citing the company's recently announced convertible tender offer. There was slight reaction in the bonds, which ended the session lower to unchanged.

WaMu paper slips

Washington Mutual's senior holding company debt fell some during trading after the company's FDIC stipulation hearing was postponed to Dec. 16.

A trader said the bonds, like the 4% notes due 2009 or the 4.20% notes due 2010, dropped a deuce to 56.5 bid, 58.5 offered. Another called the bonds 1.5 points weaker at 57.5.

"[The FDIC hearing] would have been the main event [at Tuesday's court hearing]," the first trader said. "So maybe that's putting a little pressure on them."

The deposit stipulation hearing was originally scheduled for Nov. 14 and was pushed to Tuesday. However, the matter has been postponed again and could be postponed further if WaMu, the FDIC and JP Morgan cannot come to an agreement before that date. Other matters are still slated to go before the judge Tuesday.

The stipulation hearing is in regard to about $4.4 billion that WaMu is sitting on and that the FDIC believes it may have an interest in. In mid-October, JP Morgan and WaMu said these fund were payable to WaMu Holdings, as well as its non-bank subsidiaries. But FDIC wants to block payments to those parties and allow the status quo to remain.

According to one analyst's note, it was thought that all sides would come to terms before the Nov. 14 hearing date.

GM, GMAC mostly weaker

GM and GMAC paper was once again mostly lower as the former continued to finagle its way out of a financial crisis.

One trader called GMAC's 6¾% notes due 2014 down 2 points at 28 bid, 29 offered, while another placed the 6 7/8% notes due 2012 at 32.5 bid, more than 2 points softer. Still, the latter was off of the day's lows.

But another trader said GM's 7 1/8% notes due 2013 "looked up a little" at 15 bid, 17 offered.

"Anything financial or bailout-based was probably up a little today off of the Citi news," the trader said, citing the government's bailout of Citigroup.

Yet another trader saw GM's benchmark 8 3/8% bonds due 2033 trading at a round-lot level of 14, versus 157 on Friday, on $18 million of activity, the most of any GM bond.

He also saw its 7.20% notes due 2011 down a quarter-point at 18.75 bid.

In related names, Ford Motor Co.'s 7% notes due 2013 slipped 3 points to 38 bid.

GM is reportedly considering delaying a $7 billion payment to its union retiree health fund as a way to keep cash liquid. The company is also looking at dropping more brands and renegotiating its agreements with GMAC.

These efforts are part of GM's larger scheme to get federal aid to help it through the economic downturn. GM is burning through cash at roughly $11 billion a month and, at the most recent count, had barely enough to get through the year.

GM, along with its rivals Ford and Chrysler LLC, have already met with lawmakers in an attempt to get about $25 billion in bailout funds. While the White House has said that the responsibility lies in the hands of Congress to pass a bill that would help the Big Three, some have expressed nervousness at doing such. Last week, lawmakers told the companies to create a business plan that would show how the funds would help and agreed to revisit the issue in early December.

Thinking ahead, the Big Three, as well as others in the industry affected - employees, unions and parts suppliers - met over the weekend to discuss the possibility of showing up in Washington, D.C., in a caravan. According to an Associated Press article, the carpool plan was conceived at Dura Automotive Systems Inc., which came out of bankruptcy earlier this year.

"The proper people are talking to the proper people, and things are getting put together," said Tim Leuliette, Dura's top executive. "This really picked up momentum over the weekend.

"Quite honestly, this is about America," he continued. "This is a process of people's lives being affected, and sometimes they don't know how to put a voice to those concerns."

Level 3 downgraded

Level 3's debt was lower to unchanged following a downgrade from Moody's Investors Service.

A trader quoted the 9¼% notes due 2014 at 50 bid, 52 offered, down from opening levels around 54.

Another trader saw the 8¾% notes due 2017 at 57, "in line with the last trades."

Moody's cut Level 3's rating to Ca from Caa1, citing the company's announcement last week that it would raise $400 billion in new convertible debt. Proceeds from the transaction will be used to fund a discounted tender offer for three convertible issues maturing in 2009 and 2010.

But Moody's said that current economic conditions could continue to be a problem for Level 3, with or without the tender offer.

Broad market mixed

Blockbuster Inc.'s 9% notes due 2012 were seen at 45 bid, 47 offered. A trader said that was "up a little" from levels he had seen around 44 bid, 46 offered.

Primus Telecommunications Group Inc.'s 8% notes due 2014 were offered at 5, while its 14¼% notes due 2011 were offered at 43. According to the Nasd Trace system, those bonds lat traded around 77.

A trader saw Trump Entertainment Resorts Inc.'s 8½% notes due 2015 at 15 bid, 17 offered, "down a couple" of points.

Six Flags Inc.'s 9¾% notes due 2013 were quoted by a market source up as much as 3 points on the day at 15 bid. Its 9 5/8% notes due 2014 gained more than 2 points to finish at 12.

Paul Deckelman contributed to this article.

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