Freescale largely better; Seagate stable; Ford, GM mixed ahead of numbers; Hexion unfazed by rating cut

By Stephanie N. Rotondo

Portland, Ore., Jan. 28 - The distressed bond market ended Wednesday's session a bit stronger, though traders reported that activity was thin.

"Volumes were really non-existent," a trader said. He attributed the lack of action to the market waiting for the Federal Reserve to comment on the state of economic affairs Wednesday.

"That always gives people a reason not to do anything in the morning and then they are digesting it in the afternoon," he said.

Furthermore, investors have spent most of the week eyeing several new issues that came out and have thus far performed relatively well.

But market interest in the technology sector remains. Freescale Semiconductor Inc.'s bonds were mostly better on the day, as the market prepared for the company's earnings on Thursday. Seagate Technology HDD Holdings' paper held steady, though the bonds made the most active list.

Meanwhile, Ford Motor Co. and General Motors Corp. saw their debt structures end mixed. Ford will also post earnings on Thursday and the quarterly report is not expected to be a good one.

Standard & Poor's downgraded Hexion Specialty Chemicals Inc. on Wednesday. But the news seemed to do little to the debt, as one trader saw the bonds finish a bit better than the previous session.

Freescale largely better

Following a downgrade from Moody's on Tuesday, Freescale Semiconductor's bonds closed out Wednesday mostly higher.

A trader saw $5 million of the 9 1/8% notes due 2014 trade around 13. Another source quoted that issue at 12 bid, 13 offered, a gain of about 1.5 points on the day. The 8 1/8% notes due 2014 were a deuce better at 24 bid, 25 offered, but the 10 1/8% notes due 2016 slipped 2 points to 17 bid, 18 offered.

Moody's dropped Freescale's rating to Caa1, attributing the cut in part to weakness in the automotive sector, which is a big customer of the Austin, Texas-based company.

Decline in demand has pressured the company, much like the rest of the market. Late last year, massive job cuts were announced, a move aimed at lowering annualized spending.

Freescale will release its fourth-quarter earnings on Thursday and will hold a conference call at 5 p.m. ET.

In the rest of the technology arena, Seagate Technology's 6.8% notes due 2016 traded actively. The bonds were quoted at 53 bid, 54 offered, with about $50 million changing hands.

Earlier in the week, Seagate announced a round of salary cuts at some of its European outposts.

Seagate is a Scotts Valley, Calif.-based provider of digital storage solutions.

Nortel Networks Ltd.'s bonds were called "pretty much unchanged" by one trader at 17 bid, 18 offered for its 10¾% notes due 2016.

A trader saw Sprint Nextel Corp. bonds as "pretty active" the 8 ¾% notes due 2032 at 64.375, up from 62, which he called "quite a pop," up more than 2 points on $13 million traded. Sprint's 7 5/8% notes due 2011 were up more than 3 points around the 85 level.

Charter Communications Inc.'s bonds were being quoted better, with its 10¼% notes due 2010 lifted more than 5 points on the session to the 60 level, and its 8% senior notes due 2012 up more than 2 points to the 85 area.

Ford, GM mixed

A trader said interest in the autosphere was "definitely waning," as both Ford Motor and General Motors finished the session mixed.

The trader saw $9 million of Ford's 7 3/8% notes due 2009 trade near 90. Another trader called GM's 8¼% notes due 2023 unchanged at 15 bid, 16 offered.

At another desk, GM's 7 1/8% notes due 2013 were seen unchanged at 16.5 bid and the 8 3/8% notes due 2033 were deemed more than a point better at 15 bid. Ford's benchmark 7.45% notes due 2031 were also a point stronger at 23.25 bid, while the 7% notes due 2013 slipped some to 62.5. bid.

Dearborn, Mich.-based Ford is expected to post a loss on Thursday when its releases its fourth-quarter earnings. According to a Bloomberg survey, analysts are estimating the loss will come to about $3.48 billion. It is also expected that the company's cash burn will increase significantly, making it even more plausible that Ford will have to seek government aid. Company executives have thus far said it did not believe it would need access to the funds the government set aside for the Big Three, although both GM and Chrysler have already tapped the credit lines.

Meanwhile, rival GM is following in Chrysler's footsteps yet again by closing its jobs bank on Monday. The closing of the bank, run by the United Auto Workers union, was a condition to the company's borrowing of $13.4 billion of federal funds.

Hexion unfazed by rating cut

A downgrade did little to Hexion Specialty Chemicals' debt, traders reported.

A trader said the 9¾% notes due 2014 seemed a little better, in fact, trading between 11 and 13.5. He remarked that the bonds were trading at the higher levels by the close of business.

Standard & Poor's slashed the company's rating to CCC+ from B-. The rating agency attributed the downgrade to concerns that Hexion could breach covenants in the next few quarters and that earnings were not expected to be good.

Market unchanged, slightly better

Century Aluminum Co.'s 1.75% convertible notes due 2024 were unchanged around 54, with about $15 million trading.

Dillard's Inc.'s 9 1/8% notes due 2011 closed around 66.

A trader said that Rite Aid Corp.'s bonds - which fell sharply on Tuesday as investors worried about the drugstore operator's liquidity position in the face of a weak retail environment - rebounded, with the 10 3/8% notes due 2016 at 62 bid, 64 offered and its 9 ½% notes due 2017 at 25.5 bid, 27.5 offered, which he characterized as "up a bit," around 2 to 3 points. He called the 10 3/8% notes the indicator, pointing to the better levels for all of the Rite Aid bonds, but said that there was "not a lot of trading" in it on Wednesday.

At another desk, the 10 3/8s were pegged up more than 3 points, to nearly 63, while the company's 8 5/8% notes due 2015 were seen up more than 2 points, at 22.5 bid,

However, another trader said that Rite Aid's 7 1.2% notes due 2017 "were the only losers" among the day's most active issues, seeing them at 54.5 bid, down 3 points, on $6 million traded.

Smurfit-Stone Container Corp.'s bonds held steady at the 12.25 bid, 13.25 offered level to which those bonds fell on Tuesday, after having risen to around 14-15 on Monday in the wake of the company's Chapter 11 filing.

Paul Deckelman contributed to this article.

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