Ford, GM debt mixed on bailout news; Toll Brothers active, ends somewhat better; broad market firm

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Dec. 19 - As the week came to a close, Ford Motor Co. and General Motors Corp., along with Chrysler LLC, got some good news: Automakers would in fact be getting federal funds to help them through the economic downturn.

GM and Chrysler would receive immediate aid, while Ford's situation will continue to be watched. However, Ford's management said it was pleased with the decision and understood why it was not included in the immediate bailout, as it does not have a near-term liquidity issue.

The news sent both GM and Ford's bank loans higher. In the bonds, GM was called unchanged to better, while Ford's were seen mostly unchanged.

Meanwhile, Toll Brothers Inc.'s bonds were one of the day's more active issues, traders reported. One trader called the surge in activity a "real surprise." The homebuilder had filed its 10-K with the Securities and Exchange Commission Friday, which could have explained the movement, but the report was essentially a repeat of a press release published earlier in the month.

Overall, the auto industry bailout helped not only the equity markets, but also the bond market, traders said. The distressed sector ended the week "still kind of firm," a trader remarked.

Ford, GM debt mixed

Ford and General Motors saw their term loans head higher in trading on Friday as President Bush decided to give $17.4 billion in loans to General Motors and Chrysler LLC to keep the two troubled companies out of bankruptcy, according to traders.

Ford, a Dearborn, Mich.-based automaker, saw its term loan quoted at 40 bid, 42 offered, traders said. According to one trader, the debt went out on Thursday around 38½ bid, 40½ offered, and according to a second trader, the debt was up about 2 points on Friday versus previous levels.

Meanwhile, General Motors, a Detroit-based automaker, saw its term loan quoted by one trader at 45 bid, 47 offered, up from 42 bid, 43 offered on Thursday, and by a second trader at 46 bid, 49 offered, up from 44 bid, 47 offered on Thursday.

In the bonds, a trader called GM's paper "firm, but only up 1 to 2 points." He saw the "short stuff," like the 7.20% notes due 2011 at 18 bid, 20 offered, and the "longer stuff," like the 8 3/8% notes due 2033 at 16 bid, 18 offered.

"They are still all in the teens, but they are kind of coming together now," he said.

However, another trader called GM's benchmark issue, the 8 3/8% notes, unchanged at 15.5.

Over at Ford, a trader called the long issues, such as the 4¼% notes due 2016, a point better at 31, while the short end, such as the 9¾% notes due 2010, was unchanged at 62.

Meanwhile, GMAC LLC paper jumped on the bailout news. One trader quoted the 5.85% notes due 2009 - which have been the company's most active issue of late - at 86.5 bid, 88.5 offered, up from opening levels around 78 bid, 82 offered.

Another trader saw the issue gain as much as 7 points to close at 88 bid, 89 offered, compared with 82 bid, 83 offered previously.

Still, some market players were "not convinced" that GMAC had the ability to survive even with the bailout at its former parent company GM.

"I'm not convinced GMAC will make it," a trader said. "But we'll see, today was the deadline."

The trader was citing the financing company's $38 million debt tender offer. The early tender deadline expired Friday. The company was hoping to get at least 75% participation in the exchange, as it needed to raise capital to become a bank holding company. Without it, GMAC has said there is "significant risk" it could default on its debt obligations.

Under the bailout of the Detroit automakers, $13.4 billion in loans will be available in December and January, with $9.4 billion of that going to General Motors and $4 billion going to Chrysler LLC. The remaining $4 billion in loans would come later, based on certain conditions.

Chrysler, a producer and seller of Chrysler, Dodge and Jeep vehicles, is not a name that gets traded very often, but one trader did say he saw some levels of 21 bid, 24 offered on Friday. He went on to say that on Thursday morning it was 16 bid, 20 offered.

In response to the news on Friday, General Motors said that the funds will allow for the acceleration of its aggressive restructuring plan, and that it plans to provide regular updates on its progress.

The company continued by saying that it appreciates "the President extending a financial bridge at this most critical time for the U.S. auto industry and our nation's economy.

"This action helps to preserve many jobs and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us," the company's news release added.

Cerberus Capital Management LP, the owner of Chrysler, announced on Friday that it in connection with the loan from the government, it has agreed to use the first $2 billion of proceeds from Chrysler Financial to backstop the loan allocated to Chrysler automotive.

The $4 billion secured loan from the Treasury is expected to provide a bridge to the restructuring of Chrysler's debt and labor agreements.

"This bridge loan will prevent an abrupt collapse of this industry which would have a severe impact on the economy, eliminating millions of jobs throughout the country, shifting tens of billions of dollars in pension obligations to the government and slashing the nation's gross domestic product," Cerberus said in a news release.

Also, Cerberus announced that it would contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate a restructuring of the company.

Ford, although not getting immediate help under the government bailout plan, was still pleased to hear the news Friday since it helps the entire industry.

"As we told Congress, Ford is in a different position. We do not face a near-term liquidity issue, and we are not seeking short-term financial assistance from the government," Alan Mulally president and chief executive officer, said in a news release. "But all of us at Ford appreciate the prudent step the administration has taken to address the near-term liquidity issues of GM and Chrysler. The U.S. auto industry is highly interdependent, and a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened U.S. economy."

Recently, Ford submitted to Congress a comprehensive business plan that is hoped to return the company to pre-tax automotive profitability by 2011.

In the plan, Ford said the transformation of its North American automotive business will continue to accelerate through aggressive restructuring actions and the introduction of more high-quality, safe and fuel-efficient vehicles.

In addition, Ford is asking for access to a line of credit of up to $9 billion in bridge financing, but hopes to complete its transformation without accessing the government loan.

Toll Brothers bonds trade actively

Toll Brothers' bonds traded actively, trader said, with one calling the action one of "the only real surprises" during the session.

A trader called the 6 7/8% notes due 2012 a point better at 85.25. He also saw the 5.15% notes due 2015 trade around 69, "on the offered side."

At another desk, a trader called the 5.15% notes unchanged at 69, adding that about $16 million of the bonds changed hands.

The Pennsylvania-based homebuilder filed its 10-K Friday, which might have accounted for the surge in activity. However, the report basically reiterated the results and comments made in a Dec. 4 press release and the ensuing conference call to discuss the results.

For fiscal 2008, the company said it earned $3.16 billion in revenues, versus $4.65 billion the year before. Net loss for the year came to $297.8 million, compared with net income of $35.7 million in 2007.

"Since the fourth quarter of fiscal 2005, we have experienced a slowdown in our business," the report read. "This slowdown has worsened over the past several months. The value of net new contracts signed in fiscal 2008 is 78% lower than the value of contracts signed in fiscal 2005. This slowdown, which we believe started with a decline in consumer confidence, an overall softening of demand for new homes and an oversupply of homes available for sale, has been exacerbated by, among other things, a decline in the overall economy, increasing unemployment, fear of job loss, a significant decline in the securities markets, the continuing decline in home prices, the large number of homes that are or will be available due to foreclosures, the inability of some of our homebuyers to sell their current home, the deterioration in the credit markets, and the direct and indirect impact of the turmoil in the mortgage loan market. We believe that the key to a recovery in our business is the return of consumer confidence and a stabilization of financial markets and home prices."

Broad market remains firm

Smithfield Foods Inc.'s bonds gained some ground over the last week, a trader said. He saw the 7¾% notes due 2013 at 54 bid, which he said was up from the high-40s a week ago. He also saw the 7% notes due 2011 at 64 bid, up from the high-50s.

According to another source, MGM Mirage's 7 5/8% notes due 2017 traded around 60.75, with $10 million trading. The 6 5/8% notes due 2015 gained 2 points, closing at 61 bid.

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