Freeport bonds active, lower; Isle of Capri gains despite numbers; Ford, GM steady; retailers firm

By Stephanie N. Rotondo

Portland, Ore., Dec. 3 - The distressed bond arena "definitely did not follow the equity markets," a trader said Wednesday.

"It was definitely an active day, but I don't see too many positives," he said.

The big trader of the day was Freeport-McMoRan Copper and Gold Inc. The company announced that it would suspend its dividend, as well as slash production as metal prices decline. The news resulted in a 2 to 3 point loss in the bonds.

Meanwhile, Isle of Capri Casinos Inc.'s debt managed to hold steady - or, depending on whom you asked, even gain some - despite the poor quarterly report released Tuesday. The bright spot for the company was a $95 million insurance settlement that it should receive by the end of the year.

Ford Motor Co. and General Motors Corp.'s term loans held their ground during the session. The loans had moved higher Tuesday after the companies presented their business plans to Congress in an attempt to secure federal aid.

In the retailing world, Michael's Stores Inc. and Dollar General Corp. released numbers on Wednesday. On both sides, the figures were seen as somewhat positive, or at least not as bad as was expected. Both Michael's and Dollar saw their bonds gain in reaction.

GMAC LLC's debt closed the day mixed, market sources reported. The up-and-down movement came after it was announced that the company was forgiving more than $600 million in debt at its Residential Capital LLC subsidiary.

Freeport bonds active, lower

Freeport-McMoRan's bonds were deemed the "biggest trader of the day" by one trader, after the company announced it has halted its dividend and planned to cut production.

The trader said $32 million to $35 million of the 8¼% notes due 2015 traded hands and quoted the bonds 3 points lower around 70.5. The 8 3/8% notes due 2017 were also 2 to 3 points weaker around 68.5, from 71 bid, 71.5 offered previously.

Another trader called the 8¼% notes "down a few points" at 70 bid, 71 offered.

Phoenix, Ariz.-based Freeport said Tuesday it would suspend its dividend and reduce output as the prices of metal has declined. The company said production would be cut by 5% in 2009 and 11% in 2010.

"We are responding aggressively to the current market conditions, which have weakened dramatically in recent weeks," said Richard Adkerson, chief executive officer, in a statement.

The falling price of metal will also inhibit capital spending and the company expects to spend about 50% less on capital projects in the next year than was previously planned.

In a report put out in the morning, a Deutsche Bank analyst said that investors are erroneously seeking safety in mining stocks and that many are cutting dividends as they enter into "survival mode."

Isle of Capri gains despite numbers

Isle of Capri Casinos closed the day unchanged to slightly better following the company's quarterly report put out Tuesday.

One trader pegged the 7% notes due 2014 at 43 bid, 43.25 offered, calling that up a quarter to three-eighths of a point. Another trader thought the debt looked unchanged around 42.

"That's kind of where they have been to maybe down a smidge," he said.

The St. Louis-based casino operator reported a 43-cent per share loss during its second quarter, well above the forecast 21 cents per share loss. The wider-than-expected loss was blamed in part on Hurricane Gustav and Hurricane Ike, which resulted in some of the company's properties being shut down temporarily. Much like Freeport, Isle said it would halt any new capital projects and also decided to suspend its Biloxi, Miss., expansion.

Still, the news was not all bad. During its conference call Tuesday, Isle's management said it would receive about $95 million in cash before the end of the year from its insurance companies for damages related to Hurricane Katrina.

Elsewhere in the sector, MGM Mirage's 8 3/8% notes due 2011 were seen at 48.25 bid, 50 offered and its newest issue, the 13% notes due 2013 at 87.5 bid, 89 offered, up from 85 bid, 87 offered.

Ford, GM loans steady

Ford Motor and General Motors saw their term loans hold pretty firm on Wednesday, with levels quoted unchanged to higher, depending on who was asked.

Ford's term loan was quoted at 47 bid, 48 offered by two traders, although one trader said it was unchanged to maybe up a quarter of a point on the day and the other trader said it was up on the bid side by a full point.

General Motors' term loan was also quoted at 47 bid, 48 offered by the two traders, with one saying it was unchanged and the other saying it was maybe up a quarter of a point.

Both companies had seen a couple point rally in levels during the previous session on news that the presented their bailout plans to Congress.

Ford's plan requests access to an up to $9 billion bridge loan in case the current economic crisis worsens or there is a bankruptcy of a major competitor, and General Motors' plan calls for access to $18 billion in funds, comprising a $12 billion bridge loan and a $6 billion revolving line of credit.

General Motors is a Detroit-based automotive manufacturer. Ford is a Dearborn, Mich.-based automaker.

Michael's, Dollar General improve

Better-than-expected quarterly numbers gave Michael's Stores' bonds a 3- to 4-point boost, a trader said.

The trader quoted the 10% notes due 2014 at 36 bid, 37 offered.

"[The numbers] were not as bad as everybody was looking for," he said.

The Irving, Texas-based arts and crafts retailer posted a $20 million loss for the third quarter, compared with a loss of $18 million the year before. Sales fell to $906 million from $934 million. Same-stores sales declined 6.5% during the quarter.

Meanwhile, Dollar General's numbers also came out Wednesday and the thrift store's debt also gained some.

The 10 5/8% notes due 2015 finished the day around 94.

For the third quarter, Dollar General reported a net loss of $7.3 million versus a loss of $33 million the year before. The loss was attributed to a pre-tax cost of $34.5 million concerning a proposed settlement of a shareholder lawsuit that came after the company's merger with KKR.

Sales for the quarter gained 12.4% to $2.6 billion. Sales in the same quarter of 2007 were $2.31 billion. Same-store sales increased 10.6%.

"We are very pleased to report strong results again for the third quarter, particularly given the difficult economic environment," Rick Dreiling, Dollar General's chairman and top executive, said in a press release.

Among other names in the retailing world, Neiman Marcus Group Inc.'s 9% notes due 2015 were deemed unchanged to lower by several market sources.

One source called the debt down 1.5 points at 42.25, while another said the bonds were "still" trading around 42. Yet another saw the bonds drop almost 2 points to 42.25 bid.

Rite Aid Corp.'s 8 5/8% notes due 2015 slipped a point to 28 bid.

GMAC mixed on ResCap news

GMAC's bonds ended the session mixed after news came out late Tuesday that the financing company was forgiving up to $683 million of its ResCap subsidiary's debt.

A trader saw the benchmark 8 3/8% notes due 2033 fall more than 2 points to around 20, while its shorter paper, such as the 6 7/8% notes due 2011 gained some to end at 44.

Another source called the 6 7/8% notes due 2012 more than 2 points better at 42.5 bid and ResCap's 8 7/8% notes due 2015 3 points firmer at 13 bid.

GMAC is forgiving the debt of its offspring in an effort to avoid default. Some of the ResCap's credit agreements state that the company must maintain a tangible net worth of $250 million. As that net worth has shrunk over the last year, GMAC's debt forgiveness would allow its subsidiary to maintain a net worth of $300 million.

Elsewhere in the financial sector Washington Mutual Inc.'s senior holding company paper, like the 4% notes due 2009, inched up to 60.5 bid, 61 offered.

Sara Rosenberg contributed to this article.

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