Smurfit-Stone files for Ch. 11, debt ends higher; Freeport lower despite numbers; Lear, TRW seek help

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Jan. 26 - After weeks of speculation, Smurfit-Stone Containers Corp. gave the market what it had been waiting for Monday by filing for Chapter 11 protections.

The market had been expecting the cardboard maker to file for some time, as the company has struggled with declining demand. But instead of pressuring the company's debt structure, traders reported that both the bank debt and corporate debt moved up on the day.

Meanwhile, Freeport-McMoran Copper & Gold Inc. released its fourth-quarter results and the figures came in better than was expected. Late last year, the mining company had cut its dividend program and slashed jobs and salaries, as the price and demand for copper had slowed. But the better numbers were not enough to give the bonds a boost, traders said.

Lear Corp. and TRW Automotive Inc. are among a group of automotive parts suppliers reportedly seeking federal aid to help them through the economic downturn. Suppliers have struggled along with their automaker counterparts, as their fates are closely tied to each other. But news that the industry was in trouble did little to either Lear or TRW's debt, although a trader did note that Lear has lost a fair amount of weight since the beginning of the year.

Smurfit files, debt higher

Smurfit-Stone Container's bank debt was pushed higher during the trading session as the company did what the market has been expecting for a little while now - filed for bankruptcy protection. The company's corporate debt also ended on a high note.

The strip of institutional bank debt was quoted at 66 bid, 70 offered, up from Friday's levels of 59 bid, 61 offered, one trader said.

A second trader noted that he had the paper quoted at 68 bid, 72 offered in the earlier part of the session.

"The known versus the unknown," the first trader remarked in explanation of the paper's positive performance.

In the bonds, a trader saw about $60 million of the 8 3/8% notes due 2012 and $25 million of the 8¼% notes due 2012 trade, calling the levels "up and down" around 14, actually better on the day.

Another trader also said the bonds were "up a bunch" in the 14 range, speculating that the gains might be credit default swap related.

One other source pegged the 8¼% notes at 13 bid, a more than 2-point increase.

Smurfit-Stone announced Monday that it was reorganizing under Chapter 11 in an effort to restructure its debt, with the result being a capital structure more suited to support its long-term growth and profitability.

In connection with announcing its filing, Smurfit-Stone explained that the decision was necessary as a result of a high amount of debt plus the struggling credit markets, as well as the overall economic environment.

"Over the past decade, we built one of North America's premier containerboard and packaging companies. But, our financial performance has not reflected the full potential of our earnings power due to higher cost operations and burdensome debt levels dating back to the original formation of the company," Patrick J. Moore, chairman and chief executive officer, said in a news release.

"As a result of our three-year transformation program, we have been focused on improving our operating performance and our operations are now well invested and far more cost effective," Moore continued.

"Yet, the acceleration of the unprecedented global economic recession has weakened demand for packaging, and the frozen credit markets have prevented an out-of-court refinancing of our capital structure. While this is not the outcome we anticipated, we are taking this action to become a more financially healthy company," Moore added in the release.

Chicago-based Smurfit-Stone also revealed on Monday that it has received commitments for up to $750 million in debtor-in-possession financing to fund continuing operations.

JPMorgan and Deutsche Bank are the co-lead arrangers on the DIP financing, with JPMorgan the administrative agent.

Of the total DIP amount, $350 million consists of new incremental funding and approximately $400 million represents replacement of existing accounts receivable securitization facilities in the United States and Canada.

Pricing on U.S. dollar borrowings will be Libor plus 650 basis points with a 3.5% Libor floor, and pricing on Canadian dollar borrowings will be B/A rate plus 650 bps with a 3.5% B/A floor.

On the news, Standard & Poor's, Fitch Ratings and Moody's Investors Service downgraded Smurfit's credit rating.

Freeport slips despite numbers

Freeport-McMoran's bonds traded actively, as per usual, but traders saw the debt softer to unchanged despite a better-than-expected fourth quarter.

One trader called the 8 3/8% notes due 2017 "a little lower" around the 78.5 mark. But another deemed the issue unchanged at 77.5 bid, 78 offered.

"It was pretty active, though," he said.

Phoenix, Ariz.-based Freeport reported its fourth-quarter results on Monday and the news was better than the market had expected. For the quarter, Freeport posted a net loss of $13.9 billion, or $36.78 per share, compared with a profit of $414 million, or $1.05 per share, the year before. Excluding special items, the company showed a profit of 6 cents per share, well above the loss of $1.13 per share Wall Street had predicted. The figures include a $14 billion writedown.

But even though the company's performance for the quarter came as a positive surprise, Freeport remained cautious. As such, it cut its copper and molybdenum sales targets for 2009 and 2010.

Lear, TRW look for help

Automotive parts suppliers might be the next to approach the government hat in hand, according to a statement on the Motor & Equipment Manufacturers Association's web site.

In the statement, the trade group representing such companies as Lear and TRW Automotive said it was meeting with top executives Monday to complete a request for federal aid.

But, as one trader noted that the news was "not shedding any light" on the situation, investors remained weary of any auto-linked paper.

A trader called Lear's 8 ¾% notes due 2016 "a lot lower than where they were the beginning of January" at 18 bid, 19 offered, versus 37 bid, 38 offered earlier in the year. He also saw TRW's 7¼% notes due 2017 at 45 bid, 47 offered.

At another desk, Lear's 5¾% notes due 2014 were seen moving up to 25 bid, while Visteon Corp.'s 7% notes due 2014 fell a point to 6.5 bid.

In the statement, a member of MEMA commented, "Suppliers' problems are exactly the same problems that General Motors and Chrysler had in September." The Detroit automakers received federal bailout funds in an effort to stay afloat. As sales have dwindled over the last year, the parts suppliers' are also struggling.

In fact, Visteon saw its stock plummet to the lowest it had ever been following a report that a bankruptcy might be imminent.

Univision loan gains strength

Univision Communications Inc.'s term loan B was a little stronger on Monday on the heels of the previous trading day's drop, according to a trader.

The term loan B was quoted at 49 bid, 50 offered, up from 48½ bid, 49½ offered, the trader said. Last Thursday the loan was seen at 51 bid, 53 offered, after rallying from Wednesday's levels of 46 bid, 48 offered.

Levels on the term loan B had moved up on Thursday after news came out that Univision settled its lawsuit with Grupo Televisa SAB and that the current Program License Agreement, which runs through 2017, was revised to increase payments to Televisa in exchange for incremental rights for Univision.

However, on Friday, levels came back in as investor excitement waned.

Univision is a Los Angeles-based Spanish-language media company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.