Auto sector takes it on the chin - mostly; Charter bonds dive as company hires advisor, weighs options

By Stephanie N. Rotondo

Portland, Ore., Dec. 12 - Detroit automakers - along with the rest of the market - got their answer Friday: No bailout - for now.

Lawmakers voted against a bill that would have provided for up to $14 billion in funds to help General Motors Corp., Ford Motor Co. and Chrysler LLC weather the economic storm. That was less than what the companies had said they would need in total last week during the second executive-government pow-wow.

But the news was not all bad. After the bill was voted down, the Bush administration reversed its stance regarding the usage of TARP funds to help the flailing sector. Those funds were being considered as one possible option.

Both GM and Ford's term loans managed to hold steady despite weakness early on. However, both companies' bonds saw marked declines and the automotive parts supplier arena was also under pressure.

Elsewhere, Charter Communications Inc. announced it had retained a financial advisor to begin discussions with bondholders. That news sent the cable provider's debt down as much as 15 points on the day.

With GM, Ford and Charter leading the way, distressed traders said the last trading day of the week was largely heavy.

"In general, I think things were a little bit heavier today," said one trader. He added that "things were better for sale, for the most part."

Auto sector takes it on chin

General Motors and Ford Motor saw their term loan debt bounce around on Friday, first moving lower in the morning hours and then rebounding to end the day pretty much unchanged, according to a trader.

General Motors, a Detroit-based automaker, saw its term loan quoted at 43 bid, 45 offered, versus levels of 42 bid, 46 offered on Thursday, the trader remarked.

And, Ford, a Dearborn, Mich.-based automaker, saw its term loan quoted at 39 bid, 40 offered, versus levels of 37½ bid, 40½ offered on Thursday, the trader continued.

"Expectation there might be some rescue this weekend," the trader added.

However, bond traders reported that the corporate debt did not fare as well as its bank debt counterpart.

One trader saw at least $44 million of GM's benchmark 8 3/8% notes due 2033 trade, down around 14.5. Another source also saw the issue at 14 bid, 15 offered, which he called down a few points.

Ford's paper did not trade as much as the GM issue - only $6 million to $7 million of the 7.45% notes due 2031 moved, according to a trader, but the debt was nevertheless weaker. The trader said the bonds traded between 19 and 23 - "more towards 19," he noted - which was down from around 24.5 on Thursday.

"That was the high point when it looked like they were going to put this bill through," he said.

The Senate failed to pass a bill late Thursday that would have granted the auto companies, including Chrysler LLC, $14 billion in funds to help save them from bankruptcy.

However, after talk of that failure hit, new speculation emerged that the government might find another way to help these companies, such as accessing the funds that were earmarked for the Wall Street bailout.

"We are prepared to work closely with the administration on possible solutions that could prevent further damage to our nation's economy," GM said in a statement. "We are encouraged by the White House's willingness to consider other options, including the TARP program, for immediate aid to the domestic auto industry."

The Bush administration has reportedly changed its tune in regard to the Big Three getting access to TARP funds set aside to help financial companies suffering in the economic crisis. Now, the White House is considering the TARP fund as on potential option to help the Detroit automakers, which could fail as soon as the end of the year without aid.

But the autos were not the only ones affected by the news of the failed Senate vote. GM's financing arm, GMAC LLC, saw its 5.85% notes due 2009, which have lost weight over the last three sessions, fall to 81.5, while its 6 7/8% notes due 2011 slipped to 35.

GMAC's recent attempt to become a bank holding company - which would allow it access to the TARP funds - had hit a snag earlier in the week when the company said that it had not yet received enough tenders in its debt exchange offer to meet the capital requirements set by the Federal Reserve.

According to a Bloomberg article, a GMAC bankruptcy would also hurt GM, as it is believed the carmaker would lose up to 40% of its dealers.

Among automotive parts suppliers, whose fate is directly tied to that of the Big Three, Lear Corp.'s term loan actually remained at basically unchanged levels during the trading session even though the company pulled its guidance, according to a trader.

The term loan was quoted at 46 bid, 47 offered, which is where it pretty much was on Thursday, the trader said.

"No one is really surprised they pulled their guidance," the trader added.

At another desk, a trader said the 8½% notes due 2013 closed 3 points softer around 25. Yet another source deemed the 5¾% notes due 2014 4 points weaker at 32 bid.

On Friday, Lear announced that it was withdrawing its full-year 2008 financial guidance as a result of further weakness in global automotive demand and overall industry uncertainty.

"The weakness we are seeing in global automotive production, as well as the very fluid industry environment is unprecedented. In response, we have been aggressively attacking our cost structure and pro-actively managing our liquidity position," said Bob Rossiter, chairman, chief executive officer and president of the Southfield, Mich.-based supplier, in a news release.

Meanwhile, a trader said the news had little effect on Delphi Corp.'s bonds, which are currently trading at 1 bid, 2 offered.

Visteon Corp.'s 7% notes due 2014 finished the session down 2.5 points to 12.5 bid, while Goodyear Tire & Rubber Co.'s 7 7/8% notes due 2011 dropped 2 points to close at 75 bid. TRW Automotive Inc.'s 7¼% notes due 2017 were also down a deuce at 46.5 bid.

Charter drops as it weighs options

Charter Communications bonds took a hit after the company said it had retained Lazard LLC to begin talks with bondholders regarding the company's "financial alternatives to improve the company's balance sheet," a press release said.

A trader said the 10¼% notes due 2010 dropped anywhere from 10 to 15 points on the day, ending around 25. The 8¾% notes due 2013 slipped to 40 and the 11% notes due 2015 fell to 12, which he called down at least 5 points.

Another trader said the bonds "got whacked pretty good, just slaughtered." He also saw the 10¼% notes losing 10 points, falling into the high-20s, while the 11% notes closed around 10, down from opening levels around 16.

Another market source saw the 8% notes due 2012 diving more than 11 points to close at 60.5 bid.

"We believe engaging in discussions with our bondholders, aimed at improving our capital structure and enhancing our financial flexibility, is in the company's and our customers' best interests," Neil Smit, president and chief executive officer of the St. Louis-based cable provider, said in the release. "In the third quarter 2008, revenues increased 7.3%, and net customer additions increased more than 50% year over year. Our objective in these discussions is to improve our balance sheet, which will better position Charter for the future, while we continue to focus on delivering quality service to our customers and growing our business."

The release also noted that Charter had in excess of $900 million in cash and equivalents as of Dec. 10.

The news resulted in a downgrade from Moody's Investors Service. The agency cut the probability of default rating to Ca, noting that the new grade "specifically reflects Moody's expectation that default is imminent and that a restructuring of the company's balance sheet via some form of a much more material distressed exchange and/or bankruptcy filing is likely to occur preemptively in 2009."

Broad market unchanged to lower

Idearc Inc.'s 8% notes due 2016 "traded a lot," a trader said, calling the debt lower at 6.5.But another trader said the bonds were "not overly active" and called them unchanged at 6.5.

Dean Foods Co.'s 7% notes due 2016 were seen "kind of where they have been" at 81, a trader said.

Washington Mutual Inc.'s senior holding company paper, like the 4% notes due 2009, were "weaker again," a trader said, trading around 62.

Sara Rosenberg contributed to this article.

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