Chemtura slips on back of numbers; Mohawk debt drops; NXP up on restructuring chatter; GM loan dips

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Feb. 26 - The distressed bond market was "firm in the morning and weaker in the afternoon," a trader said Thursday.

"It looks like the market was anticipating some of these new issues," he added, referring to both Videotron Ltee and Williams Cos., Inc.'s newest debt pieces. It was those new issues, along with some higher-grade issues, that dominated the day.

Still, Chemtura Corp. managed to lose some ground after putting out its fourth-quarter results. The company warned that it might not meet certain covenants, as well.

Mohawk Industries Inc.'s bonds were also lower. A trader said that the bonds had finally reacted to the company's own quarterly report put out earlier in the week. The report contained what the trader called "crappy" numbers.

NXP BV's bonds moved up on news reports that the company was looking to restructure its debt. The reports noted that some market players believe some sort of restructuring is possible in the wake of Freescale Semiconductor Inc.'s own debt exchange offer.

General Motors Corp.'s term loan lost some weight following the company's dismal fourth-quarter results. But traders saw little to no action in the company's corporate debt. After the numbers, the market was left wondering whether the automaker should be kept alive with government funding.

Chemtura slips on numbers

Chemtura's bonds fell at least 3 points on the day after the company put out its quarterly report.

A trader saw the 6 7/8% notes due 2016 at 48.5, calling that 3.5 points weaker.

Another trader quoted the bonds at 46 bid, 47 offered, compared with levels around 52 previously.

"I guess [investors] didn't like [the numbers]," he said.

Chemtura released its fourth-quarter results late Wednesday. The company showed a net loss of $3.04 per share on revenue of $690 million. Also, the company said that it might not be in compliance with certain covenants after a 90-day waiver period - secured in December 2008 - ends.

"The fourth quarter proved to be a very challenging quarter," Craig A. Rogerson, chairman, president and chief executive officer, said in a statement. "Like many industrial companies, Chemtura saw order volumes decline sharply in November and December as our customers experienced, or anticipated, reductions in demand from the industries they serve. Lower manufacturing output resulting from lower demand and our efforts to reduce inventories, resulted in much higher manufacturing variances. These changes led to an unprecedented decline in operating profitability and a managed basis operating loss of $27 million for the quarter. With the benefit of working capital reductions, the company generated cash from operations in the quarter before proceeds from the sale of accounts receivable. However, the decline in our net sales and associated earnings resulted in a reduction in the availability under our senior credit facility revolver and significant reductions in our accounts receivable facilities, placing significant stress on our liquidity.

"As demand and profitability declined, it became necessary to seek relief from the two financial covenants under our senior credit facility," Rogerson continued. "Our lenders responded quickly to our needs and we entered into a 90-day amendment and waiver agreement on Dec. 30, 2008. The waiver expires on March 30, 2009. Secondly, the decline in financial performance reduced the value of accounts receivable that we could sell under our accounts receivable facilities. Certain of our lenders have assisted us in creating a new U.S. accounts receivable facility that we entered into on Jan. 23, 2009 that restores much of the available utilization we had under the former U.S. facility. The providers of our European accounts receivable facility have continued to support the company, but restricted our sales of accounts receivable. We are in the process of revising this facility which will permit its continued operation, but result in a significant reduction in the value of the European accounts receivable we can sell."

Earlier in the week, news reports indicated that Sinpoec and other Chinese companies had expressed interest in purchasing about $1 billion worth of assets the company put up for sale. Chemtura has stated in early February that it was looking to sell off some assets as a way to fund upcoming maturities and to reduce inventories.

However, in order for Chemtura to meet its July maturity, a buyer would have to be selected by the end of March in order to meet the looming deadline.

Chemtura is a Middlebury, Conn.-based chemical company.

Mohawk debt drops

Mohawk Industries' debt "finally" dropped, a trader said, after the company released what he called "crappy earnings" earlier in the week.

The trader saw the 6 1/8% notes due 2016 slip 2.5 points to 74.5.

Another source pegged the issue at 74.5 bid, 75.5 offered, a loss of nearly 5 points on the day.

On Monday, Mohawk posted a $127.6 million, or $1.87 per share, loss for the fourth quarter. That compared with a profit of $379.1 million, or 53 cents per share, a year ago.

The fourth-quarter results were impacted by a pretax impairment charge of $124.5 million. The company also had a restructuring charge of $30 million.

Sales declined 18% to $1.49 billion from $1.81 billion the previous year.

Furthermore, Mohawk said it expects sales to continue to deteriorate through the first quarter and forecast a first-quarter loss of 80 cents to 89 cents per share.

"We are in an unprecedented time where the U.S. and world economies [are] under great stress," Jeff Lorberbaum, Mohawk's CEO, said during the company's conference call. "Our businesses are suffering from the same issues as the entire economy, including increasing unemployment, falling consumer confidence, limited credit availability, declining business investment.

"In addition, the housing contraction had a significant impact on the purchase of flooring for residential channels. The European economy has also rapidly declined over the last few months. In this environment, we are focused on cash flow and the balance sheet."

"Our business tends to lead the economy in the downturns, and likewise into recovery periods," Lorberbaum continued. "Since January 2008, we have taken many actions, including produced full-time staffing of our business by almost 6,000, shut down nine manufacturing sites and a number of production lines. We cut warehousing by 1.25 million square feet. We have reduced inventory receivables. We implemented multiple price increases, and we have improved business processes throughout the company. We continue to aggressively realign the structure of our organization to address changing business conditions during the fourth quarter and going forward."

Mohawk Industries is a Calhoun, Ga.-based manufacturer of carpet, rugs, hardwood floors, laminate, ceramic tile and vinyl flooring.

NXP gains on restructuring chatter

Chipmaker NXP saw its debt gain some ground during trading on news reports that indicated the company was looking to restructure its debt.

A trader placed the 9½% notes due 2015 at 9.25, up from the mid-single digits.

Another trader saw the bonds at 9 bid, versus 8.75 bid, 9.75 offered earlier in the day.

The second trader also saw the floating-rate notes at 21 and an 18 bid on the 7 7/8% notes due 2014.

"It should be 20," he said of the latter.

NXP is reportedly considering swapping its unsecured bonds for new secured bonds. Some market players have speculated that NXP will go the way of its closets rival, Freescale Semiconductor Inc., which recently announced a distressed debt exchange.

On Tuesday, Standard & Poor's revised its recovery rating on the Eindhoven-based company to 4 from 3, indicating an average of 30% to 50% recovery. S&P left the company's other ratings unchanged.

GM debt unchanged to softer

General Motors' term loan softened in trading as the company came out with earnings results that were, according to the company, impacted by the dramatic deterioration in global economic and market conditions during the year, declining consumer confidence and a 50-year low in per-capita auto sales in the United States.

According to a trader, the term loan was quoted at 37 bid, 39 offered, down from previous levels of 38 bid, 40 offered.

In the bonds, a trader called the 7.4% notes due 2025 flat at 13, while rival Ford Motor Co.'s 8 7/8% notes due 2022 were up nearly a point at 17 7/8. However, Ford's 8.9% notes due 2032 slipped slightly to 17.3.

For the fourth quarter, General Motors reported a net loss of $9.6 billion, or $15.71 per diluted share, compared with a net loss of $1.5 billion, or $2.70 per diluted share, in the year-ago period.

Adjusted net loss for the quarter was $5.9 billion, or $9.65 per diluted share, compared with adjusted net income of $46 million, or $0.08 per diluted share, last year.

Fourth quarter results reflect special items totaling $3.7 billion.

And, revenue for the quarter was $30.8 billion, down from $46.8 billion in the fourth quarter 2007.

Also weighing on peoples' minds is the question about General Motors' liquidity, which, the trader said was a factor in term loan levels falling on Thursday.

As of Dec. 31, General Motors had cash, marketable securities and readily available assets of the Voluntary Employees Beneficiary Association trust totaling $14 billion, down from $27.3 billion on Dec. 31, 2007.

Adjusted automotive operating cash flow was negative $5.2 billion in the fourth quarter, and the company ended the 2008 calendar year with adjusted automotive operating cash flow of negative $19.2 billion, largely due to lower volume across the company's global operations and negative working capital.

"2008 was an extremely difficult year for the U.S. and global auto markets, especially the second half," Rick Wagoner, chairman and chief executive officer, said in a news release. "These conditions created a very challenging environment for GM and other automakers, and led us to take further aggressive and difficult measures to restructure our business.

"We expect these challenging conditions will continue through 2009, and so we are accelerating our restructuring actions," Wagoner added.

Along with its earnings release, General Motors said that it anticipates receiving a "going concern" opinion from its auditors in the 2008 10-K.

On Dec. 31, the company entered into a loan agreement with the U.S. Department of Treasury for funding of $13.4 billion, payable in three tranches. The initial installment of $4 billion was provided on Dec. 31, followed by subsequent installments of $5.4 billion on Jan. 21 and $4 billion on Feb. 17.

In a viability plan filed with the Treasury on Feb. 17, General Motors included a request for additional government funding, as well as support from other governments outside of the U.S.

The company said that it requires this additional funding in 2009 to continue operations until global automotive sales recover and its restructuring actions generate benefits.

"Until they get the money, everyone is wondering when [it will] come. Uncertainty about overall liquidity," the trader added.

There is also uncertainty about whether the company can continue operating, even with additional government funding.

"General Motors was pretty straightforward and unapologetic when it reported its disastrous fourth-quarter result this morning," Shelly Lombard, Gimme Credit analyst, wrote in an afternoon comment. "There's no need to put on a 'game face' at this point since the market was already expecting the numbers to be terrible; it's clear that the swift and deep global slowdown is hurting even the healthy [original equipment manufacturers]; and the company wouldn't be pleading for government aid unless things looked dire. The only question is whether the hole GM is in is so deep that it can't climb out of it even with government aid."

General Motors is a Detroit-based automaker.

Broad market mixed

American International Group Inc.'s 5.2% notes due 2011 gained 5 points to close at 47, a trader said. He also saw the 6½% notes due 2017 end at 39, though he didn't know if that was better or worse.

MGM Mirage's bonds were seen "getting cheaper again" by another market source. The source placed the 7½% notes due 2016 at 45, the 7 5/8% notes due 2013 at 10 and the 9 38% notes due 2010 at 50.

"These are damaging levels," he said.

Sprint Nextel Corp.'s paper was deemed unchanged on the day, its 7 5/8% notes due 2011 at 86 bid, 87 offered, its 8¾% notes due 2032 around 60 and its 8 3/8% notes due 2012 at 80 bid, 81 offered.

"This is one of those names that will be bought if there is money around," a trader said.

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