Freescale weighed by industry woes; Lear notes fall on downgrade, credit amendment; Lyondell gains

By Stephanie N. Rotondo

Portland, Ore., Jan. 7 - The general market's rally came to an end Wednesday and the distressed bond market reacted in kind.

Still, despite an overall weaker day, traders were remaining somewhat upbeat.

"Things continued to hold in there pretty well," a trader said.

Concerns about the computer chip industry might have been what prompted Freescale Semiconductors Inc.'s bonds to fall during trading. The bonds had experienced a run-up on Tuesday, but as news came out from Intel regarding a disappointing sales quarter, the debt lost steam.

In the automotive arena, Moody's Investors Service cut its rating on Lear Corp. Wednesday. The downgrade was a result of the company's announcement on Tuesday that it was looking to amend its primary credit facility. Traders saw the automotive parts supplier's paper slip about 3 points on the day.

Freescale weighed by industry woes

Freescale bonds, which had run up in Tuesday's session, came back down Wednesday following disappointing sales numbers from rival Intel.

A trader said "$30-odd million" of the chipmaker's 8 7/8% notes due 2014 traded, falling to around 47 from a high of 53 the previous day. But another trader quoted the bonds at 50.5 bid, 51.5 offered, still down from Tuesday's levels.

Falling demand for computer chips was blamed for Intel's 23% decline in sales during the fourth quarter, the company said. Revenue fell to $8.2 billion from $10.7 million the year before.

Freescale is looking to catch up with Intel, the industry's leader, by unveiling a new ARM-based chip for netbooks priced under $200. The company plans to give consumers a glimpse of their newest product at the Consumer Electronics Show in Las Vegas this week. Advanced Micro Devices is slated to release a similar chip at the show as well.

Elsewhere in the sector, Amkor Technology Inc.'s 7¾% notes due 2013 gained 3 points to close at 66, while Sprint Nextel Inc.'s 8¾% notes due 2032 dropped to 71.

Lear paper falls on downgrade

The Big Three might have gotten a reprieve from the government, but auto parts suppliers have yet to feel the effects.

Southfield, Mich.-based Lear saw its rating tossed lower into junk territory by Moody's Investors Service Wednesday, following word on Tuesday that the company was looking to amend its primary credit facility.

A trader said the 8½% notes due 2013 "traded a bunch" on the news, falling to around 42. He added that there was "still paper for sale."

Another source quoted the bonds at 41 bid, 42 offered, down about 3 points on the day.

Moody's dropped Lear's senior unsecured debt to Caa2 from B3. That was two grades lower than it had been and eight levels away from investment grade.

The rating agency attributed its cut to deteriorating conditions in the auto market. The recent news of the credit amendment also prompted the decision.

"The weakening business environment will cause further erosion of the company's operating performance," Moody's said in a statement. "In late October the company had indicated in its earnings announcement that it did not anticipate any near-term covenant compliance problems, yet the rapid deterioration in the business is now likely to cause covenant breaches."

And that might be what Lear is concerned about as it negotiates with its lenders.

Lear indicated that the negotiations were more preemptive than anything else, as its cash position remained strong. At the end of December, the company had $1.6 billion in cash and equivalents.

"Given the very challenging external environment, we are proactively addressing our capital structure to maintain our financial flexibility," said Bob Rossiter, Lear's chairman, president and chief executive, in a statement.

Meanwhile, Exide technologies Inc.'s 10½% notes due 2013 gained another couple of points, a trader said, to close around 66.

Among the automakers, Ford Motor Co.'s 7% notes due 2013 dropped 3 points to 68 bid, while General Motors Corp.'s 7 1/8% notes due 2013 fell just over 2 points to 23.5 bid. GM's financing arm, GMAC LLC, saw its 6 7/8% notes due 2012 dip a deuce to 77.25 bid.

Broad market still better

A trader saw Lyondell Chemicals' bonds continue to gain, following Tuesday's bankruptcy filing; he pegged its 10½% notes due 2010 at 26 bid, well up from 20.25 on Tuesday, with $8 million traded.

Another upsider was travel service operator Sabre Holdings, whose 7.35% notes due 2011 last traded on a round-lot basis at 38, well up from 30 previously, with $8 million traded.

Paul Deckelman contributed to this article.

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