Ford numbers weigh on auto sector debt; Portola plan pressures bonds; SemGroup debt pares losses

By Stephanie N. Rotondo

Portland, Ore., July 24 - Ford Motor Co.'s bonds began to drift lower Thursday following the release of the Dearborn, Mich., automaker's second-quarter financials, which showed a hefty quarterly loss.

The weakness in the bonds came after several sessions of gains for the automotive sector. But Ford's poor performance weighed on the auto arena and recent gains were pared.

Elsewhere, Portola Packaging announced it had come to terms with its lenders and stakeholders regarding a restructuring plan. That news sent bids for the bonds down 20 points, though trading activity was minimal.

SemGroup LP, however, managed to regain some ground. The company's debt structure traded up a few points, leaving some to speculate that buyers want to know what is really going on inside the company.

Level 3 Communications Inc. reported earnings as well on Thursday. While there was not much to report in the company's bonds, the company's term loan ended stronger.

Overall, distressed traders said the market tried to move higher early in the day. But a 283-point drop in the Dow Jones Industrial Average blocked any huge rally.

"I think some people just got nervous," said one trader.

Ford numbers weigh on sector

Ford Motor's debt drifted lower after the third-biggest U.S. carmaker reported a quarterly loss of $8.7 billion.

A trader quoted the 8% notes due 2016 at 73 bid, 74 offered, the 7 3/8% notes due 2011 at 81.5 bid, 82.5 offered and the benchmark 7.45% notes due 2031 at 57 bid, 58 offered.

Another source saw the benchmark bonds at around 55, down about 2 points. At another desk, Ford's 7% notes due 2013 were called a point weaker at 76 bid.

Another trader saw the 7.45% bonds down 4 points on the day at 54.5 bid, 55.5 offered, while another trader said the Ford bonds were down only 1 point at 55.5 bid, 57.5 offered.

Ford's hefty loss was largely due to $8 billion in pretax write-downs from plant closings and due to a loss of truck lease value.

Ford said that the rising price of gas and the weakening economy has also inspired it to ramp up production for its fuel-efficient line of vehicles, an effort to move away from its gas-guzzling truck business.

Meanwhile, Ford's financial issues leaked into the rest of the autosphere, sending General Motors Corp.'s bonds down at least 2 points. A source pegged the 7 1/8% notes due 2013 at 63, while GMAC LLC's 6 7/8% notes due 2012 fell just over 2 points to 66.75.

Another source saw the 6 7/8% notes at 66 bid, 67 offered, as well as the 7¾% notes due 2010 at 84 bid, 85 offered and the 5 5/8% notes due 2009 at 91.5 bid, 92 offered.

Elsewhere, a trader called GM's benchmark 8 3/8% notes due 2033 down 1 point at 56.5 bid, 58 offered, while another saw them 2.5 points lower at 56 bid, 57 offered.

Among shorter-dated bonds, a trader said that GM's 7.2% notes due 2011 "continues to be a popular [i.e., busily traded] issue." He saw those bonds down a point at 73 bid, 75 offered, while its 7 1/8% notes due 2013 were seen down a deuce at 63.

Portola plan pressures bonds

Portola Packaging announced it had come to terms with its lenders and investors and had therefore developed a restructuring plan that would include a pre-packaged bankruptcy filing.

On the news, traders reported that bids for the 8¼% notes due 2012 fell 20 points, though there was little to no trading.

One trader pegged the paper at 16 bid. He noted that the bonds had not traded in about a week, when they were seen in the low-40s.

Another trader said he had previously had a 40 bid on the notes, but the bonds closed the session closer to 20 bid.

According to a press release, more than 80% of Portola's secured lenders and noteholders are supporting a plan that would give 100% of the new equity in the company to noteholders. The plan is expected to reduce long-term debt by $180 million.

Wayzata Investment Partners LLC has agreed to finance a $10 million bridge facility to fund the restructuring process. Wayzata is also expected to become the largest shareholder post-bankruptcy.

"We are pleased to have achieved such strong support for a consensual restructuring that dramatically improves our balance sheet, reduces our annual cash interest obligations by approximately $15 million and enables continued reinvestment in our products and future growth," Brian J. Bauerbach, Portola's top executive, said in a news release.

Earlier in the month, Portola filed an 8-K in which it said its 2007 financials, as well as those for the first two quarters of 2008, should not be relied upon due to an accounting error found at its Chinese subsidiaries. Portola said it would also not be able to file in third-quarter 10-Q in a timely manner.

Tentatively, the company expected to post sales of $75.1 million for the quarter, compared to sales of $68.7 million the previous year. EBITDA was expected to come in at $6.6 million versus $8.8 million in 2007.

Portola Packaging is a Batavia, Ill.-based designer, manufacturer and marketer of tamper-evident plastic closures used in dairy, fruit juice, bottled water, sports drinks, institutional food and other non-carbonated beverage markets.

SemGroup debt gains ground

SemGroup's term loan was stronger on Thursday as the paper seems to have found more buying interest, according to a trader.

"I think people are just trying to buy to get information and get on [private] lenders' calls," the trader said.

The term loan was quoted at 70 bid, 75 offered, up from 63 bid, 65 offered, the trader added.

On the corporate debt side, a trader saw the company's bonds improve as well, its 8¾% notes due 2015 at 18 bid, 21 offered.

On Tuesday, the company, not surprisingly, filed for Chapter 11. Since then, it has received court approval of its initial bankruptcy case motions, including authorization to use cash collateral, which its bank group has approved as well. Since the filing, market sources have opined that litigation might soon follow.

The company is still negotiating a debtor-in-possession financing facility.

SemGroup is a Tulsa, Okla., owner and operator of midstream energy assets.

Level 3 loan better, bonds quiet

Level 3 Communications' term loan also traded up after the quarterly results were released and the company revised certain forward guidance.

The term loan was quoted at 90¾ bid, 91¼ offered, up from 89 bid, 90 offered on Wednesday, the trader said.

In addition, on Thursday the loan "traded up at 91.25 a few times post-numbers," the trader remarked.

But bond traders said they saw little to no activity in the corporate debt.

For the second quarter, the company's net loss was $33 million, or 2 cents per share, including a gain of $96 million, or 6 cents per share, on the sale of the company's Vyvx advertising distribution business. This compares to a net loss of $202 million, or 13 cents per share, for last year's second quarter.

Consolidated revenue was $1.09 billion for the quarter, an increase of 4% compared to $1.05 billion last year.

Consolidated adjusted EBITDA was $251 million in the quarter, a 30% increase from $193 million for the second-quarter 2007.

Free cash flow for the quarter was positive $4 million versus negative $141 million last year.

"Our strong second-quarter results reflect Core Network Services growth and our continued focus on reducing network costs and operating expenses," said James Crowe, president and chief executive officer, in a news release. "We generated positive free cash flow and now expect to be free cash flow positive for the remainder of the year. And as previously announced, we expect to be free cash flow positive for the full-year 2009."

"Our previous guidance for adjusted EBITDA and free cash flow included anticipated results from the Vvyx advertising distribution business," said Sunit Patel, executive vice president and chief financial officer, in the release. "For the second half of 2008, the Vvyx advertising distribution business was expected to contribute approximately $10 million in adjusted EBITDA and cash flow. Our 2008 business outlook for both core communications services revenue and consolidated adjusted EBITDA remains unchanged.

"In addition, we are raising our 2008 free cash flow guidance from breakeven to positive for the remainder of the year," Patel added in the release.

Level 3 is a Broomfield, Colo.-based provider of fiber-based communications services.

Broad market softens

It was a "major day" for Harrah's Entertainment, a trader said, though he was not sure why.

He said the 10¾% notes due 2016 traded in a 77 to 78.5 context all day. He also saw the 10¾% toggle notes due 2018 at 69.5 bid, 70.5 offered and the 6½% notes due 2016 at 47.75 bid, 48.25 offered.

The trader added that the debt was "a little better in the morning" but came in with the rest of the market as the Dow fell more than 250 points.

Another trader saw a fair amount of "capital structure arbitrage trades" in the gaming sector, especially in names like Station Casinos Inc., Harrah's and MGM Mirage, where "guys were trying to buy one and sell another. Station, he said, "was pretty active."

A market source quoted Station Casinos' 6 7/8% notes due 2016 down 3 points on the session at 49.5, while its 6% notes due 2012 lost nearly a point to end at 75.5.

On Wednesday, a market source told Prospect News that debtholders were anticipating a debt swap soon.

Meanwhile, Masonite International Inc.'s 11% notes due 2015 continue to slide, ending the day at 39 bid, 40 offered.

Bally Total Fitness Holdings' bonds traded down another 4 points, a trader said, to the 45 area.

"Nobody knows what is going on," he said. Bally exited Chapter 11 protections last October. Since then, the trader said, the bonds have slid from over par to the 70s, 60s and now the 40s.

Sara Rosenberg and Paul Deckelman contributed to this article.

© 2015 Prospect News.
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