Ford structure mixed on debt news; MGM boosted by asset sale chatter; Freeport bonds active, steady

By Stephanie N. Rotondo

Portland, Ore., April 6 - Ford Motor Co.'s debt structure ended Monday's session mixed after the company said it reduced its debt by $9.9 billion.

Market players saw the automaker's term loan gain some ground, though its corporate debt was a little wishy-washier. Sources did note that the company seemed better poised now, especially compared with its counterparts.

MGM Mirage's bonds got a boost on news that the company was considering asset sales. The sales could be used as a way to reduce debt, which could then help the company complete its CityCenter project.

Meanwhile, a decline in demand and price of copper did not seem to phase Freeport-McMoRan Copper & Gold Inc.'s debt. Traders deemed the name the day's most active, with the bonds closing the session largely unchanged.

Ford structure mixed

Ford Motor's term loan was a little better on Monday after the company said that its previously announced debt tenders and exchanges have closed successfully, although the move was probably more technically driven than news-driven, according to a trader.

The term loan was quoted at 47¾ bid, 48¾ offered, up from Friday's levels of 47½ bid, 48½ offered, the trader said, adding that it had been as high as 48 bid, 49 offered first thing in the morning but it came in slightly over the course of the day.

The tender news was mostly expected. It's "been trading in that range," the trader added regarding Ford's performance on Monday.

But in the bonds, market sources gave mixed reviews of the day's performance.

"Those seem to have lost their luster," one trader said of the automaker's debt, adding that he had seen little to no trading in the name.

Another source quoted the 7% notes due 2013 at 68 bid, 69 offered, down a point on the day. The benchmark 7.45% notes due 2031, however, gained anywhere from a point to more than 2 points, traders said. Several sources placed the issue around 35 bid, 36 offered.

"By substantially reducing our debt, Ford is taking another step toward creating an exciting, viable enterprise," said Alan Mulally, president and chief executive officer, in a news release. "As with our recent agreements with the UAW, Ford continues to lead the industry in taking the decisive actions necessary to weather the current downturn and deliver long-term profitable growth."

Under the restructuring that was completed, Ford reduced its debt by $9.9 billion from $25.8 billion at Dec. 31, 2008 and annual cash interest expense was lowered by more than $500 million based on current interest rates.

As part of the debt initiatives, the company received tenders for approximately $4.3 billion of its 4.25% senior convertible notes due Dec. 15, 2036. Ford will use $344 million to pay a cash premium to convertible note holders who validly tendered. Approximately $579 million of the convertibles remain outstanding.

In addition, the company is using $1.1 billion in cash to purchase $3.4 billion of its unsecured non-convertible debt securities. Approximately $5.5 billion of the notes remain outstanding following the tender.

The convertible conversion offer and the notes tender offer expired on April 3.

Also, on March 23, the company used $1 billion, up from an initially proposed amount of $500 million, to purchase $2.2 billion of its term loan debt at a price of 47. Approximately $4.6 billion of the term loan remains outstanding.

"Although Ford's future still depends on a recovery in auto sales, the debt restructuring and union contract changes have decreased the chances of a Ford bankruptcy," wrote Gimme Credit analyst Shelly Lombard in an afternoon comment. "In addition, the chance that a General Motors or Chrysler bankruptcy will drag Ford into Chapter 11 has lessened as well since the Obama administration appears ready to 'backstop' a GM bankruptcy to prevent a liquidation and appears ready to support auto suppliers, although the amount of aid currently on the table is small."

Though Lombard reiterated her belief that the company's bonds would outperform the sector, Standard & Poor's downgraded the company to SD, calling the recent tender offer a distressed exchange.

"The tender offers will reduce debt and lower interest costs, and Ford has stated that annual interest savings will be more than $500 million," S&P analyst Robert Schulz said in a statement. "However, even with this debt reduction, our preliminary expectation is that the new corporate credit rating will likely not be higher than the CCC category initially because we believe Ford's fundamental business risks remain unchanged for at least the rest of 2009 and perhaps longer: most notably, deteriorating vehicle demand globally and the substantial execution risk of the ongoing restructuring."

Ford is a Dearborn, Mich.-based automotive company.

MGM better on asset sale talk

MGM Mirage's paper got as good as 5 points better on the day on the back of news that the company was considering some asset sales.

A trader said there was considerable action in the casino operator's debt, the 6% notes due 2009 gaining 4 points to close at 63.5 and the 9 3/8% notes due 2010 gaining 5 points to finish at 35.

Another trader said MGM's bonds "look a little better," placing the 6% notes at 64 bid, 65 offered, versus levels of 60 bid, 61 offered on Friday.

Yet another source called the 6 5/8% notes due 2015 2 points stronger at 39.5 bid.

News reports indicated that MGM hired Morgan Stanley to evaluate bids on its casinos in Michigan and Mississippi. An unnamed source claimed that potential buyers have expressed interest in the MGM Grand Detroit, the Beau Rivage in Biloxi and the Gold Strike in Tunica.

The asset sales could help MGM reduce its debt, which in turn could help it complete its CityCenter project on the Las Vegas Strip. MGM has been working on a funding plan for the project and is hoping to have something in place by April 13.

Furthermore, Colony Capital LLC is reportedly in talks with MGM on investing in CityCenter. Crown Ltd. is also reportedly interested in such a deal.

Freeport active, steady

Freeport-McMoRan's bonds remained the No. 1 trader of the day, a trader said, and finished the session essentially unchanged.

A trader said about $100 million of the company's various issues traded in total, with the 8 3/8% notes due 2017 and the floating-rate notes due 2015 being the "two main ones that traded." He placed the former at 94.5 and the latter at 84.

At another desk, a trader also called the name the "most active." He saw the 8 3/8% notes around 96 and the floaters around 83.25.

In 2008, Freeport struggled as the price of copper fell and demand tanked. However, since the beginning of 2009, copper prices rose by 40% as of April 3.

But since that date, prices and demand have been falling again. The average price of copper for the current quarter is expected to be around $3,400 a ton, versus $4,301 on April 3. Additionally, demand is expected to decline 9.2% in 2009, marking the biggest decline since 1975. Some in the know have speculated that the shrinking demand was due to reduced purchases from China, which is also struggling as the global economy deteriorates.

On April 2, Freeport's chief executive even went so far as to say that it was too soon to reverse production cuts made in 2008.

Freeport is a Phoenix, Ariz.-based copper and gold mining company.

Financials mixed

A trader said that "a new name" in the junk world, following last week's ratings downgrade, was Capital One Financial Corp. He saw its 6.745% variable-rate notes due 2037 at a round-lot level of 36.125 bid, versus 34 a week ago, on volume of $30 million.

The trader also said that American General Finance, a unit of troubled American International Group Inc., is now trading as a junk bond. He saw its 4 7/8% notes due 2010 at 58.75 bid, well up from 51 last Thursday, calling the rise "quite a move on a dead day like today." Volume was $17 million.

Sara Rosenberg and Paul Deckelman contributed to this article.

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