Lear bonds fall after numbers; AIG paper under pressure; MGM remains weak; broad market softer

By Stephanie N. Rotondo

Portland, Ore., May 14 - Lear Corp. reported earnings on Thursday and, as a result, the company's bonds took a tumble.

Market sources called the corporate debt as much as 7 points softer day over day. But the company's bank debt actually gained ground.

In the financial sector, American International Group Inc.'s notes came under pressure, traders reported. The day's losses came as the company was reportedly considering spinning off its Asian life insurance unit and as top executives met with Congress to discuss its restructuring efforts.

MGM Mirage said it completed a $1 billion stock sale. But the news did not help the casino operator's debt, which was seen weakening throughout the session.

Lear bonds fall after numbers

Automotive parts supplier Lear saw its bonds drop as much as 7 points on the day on the back of its earnings release and subsequent conference call.

One trader called the debt down 2 to 7 points, the 8½% notes due 2013 at 28, the 5¾% notes due 2014 at 32 and the 8¾% notes due 2016 at 27 - the latter being the day's 7-point loser.

Another source placed the 5¾% notes around 30, deeming that down 4 points.

However, Lear's term loan gained a few points in the secondary market after earnings came out, despite the results looking pretty negative, according to traders.

The term loan was quoted by one trader at 60½ bid, 62½ offered, up from Wednesday's levels of 58½ bid, 60½ offered, and by a second trader at 59½ bid, 61½ offered, up from previous levels of 53¼ bid, 55¼ offered. The first trader remarked that he saw the loan in that 53 to 55 context on Tuesday but that it started moving up from there on Wednesday.

The Southfield, Mich.-based company reported a loss of $262.8 million, or $3.42 per share. That compared with a profit of $78.2 million, or $1.01 per share, in the first quarter of 2008.

Sales dropped to $2.2 billion from $3.9 billion. The company said that restructuring costs of $115 million attributed to its quarterly deficit.

During the conference call to discuss the results, Matt Simoncini, Lear's chief financial officer, noted that the company was focused on addressing its debt structure.

"We recognize we have to address our debt structure, although our liquidity remains strong," he said.

On Wednesday, Lear announced that it had received a second covenant waiver from its bank lenders, giving the company until June 30 to cure a default. However, under the conditions of the waiver, the company will be unable to pay interest payments coming due on June 1.

"We haven't made a decision on the bond payments," Simoncini told analysts during the call. He noted that any action taken on the debt could extend outside the 30-day grace period.

Still, the company continues its restructuring efforts and remains committed to achieving a reorganization outside of bankruptcy.

"It is our strong preference to accomplish this outside of court," said Bob Rossiter, Lear's chief executive officer.

But not everyone is optimistic that the company can restructure on its own.

"Lear's first quarter results were expectedly bleak," wrote Shelly Lombard, an analyst with Gimme Credit LLC, in a note to clients. "To ensure it had liquidity if customers like General Motors filed Chapter 11, Lear borrowed $1.2 billion on its revolver at the end of 2008. But that put the company in violation of its leverage covenants and, rather than providing covenant relief, the banks appear to be forcing Lear to restructure. If Lear can't restructure before June 30, it may have to file bankruptcy."

Elsewhere in the autosphere, General Motors Corp.'s term loan saw a big rise in levels during the afternoon, although traders were stumped as to what was pushing the paper higher.

One trader was quoting the term loan at 66 bid, 68 offered, up from 58½ bid, 60½ offered and another trader was quoting it earlier in the day at 62 bid, 64 offered, up from 59 bid, 61 offered.

The second trader was also quoting the revolver higher at 57½ bid, compared with 54 bid in the morning.

"Had a couple of people try to come in and buy the term loan and revolver. Don't know why," the second trader added.

General Motors is a Detroit-based automotive company.

AIG paper under pressure

American International Group's bonds experienced some losses Thursday, "leading the charge," a trader said, of declines in the secondary world.

The trader called the 5 3/8% notes due 2012 about 3.5 points weaker, ending around 52.

Another market source saw the bonds dropping 1 to 3 points on the day, the 4.95% notes due 2012 at 54 bid, 55 offered and the 5.9% notes due 2012 at 54 bid, 56 offered.

The slide in the insurer's debt came after it was learned the company was considering spinning off its Asian life insurance unit in the first quarter of 2010. The Hong Kong initial public offering was valued at $5 billion to $10 billion.

Also on Thursday, Edward Liddy, chief executive officer of AIG, stood before a congressional oversight committee to give an update on the company's restructuring efforts.

"We continue to weigh every decision regarding the restructuring with several criteria in mind," Liddy said. "Will this action facilitate a reduction in systemic risk? Is this action the best use of the federal assistance we are receiving? Will this action enhance our ability to pay back the government?"

But some on the committee seemed to think that AIG was not doing enough to prove it was making progress.

"We are hearing, 'Trust us,' but we are not willing to let $180 billion go just on trust," said Rep. Edolphus Towns, D-N.Y., chairman of the House Oversight Committee. "We will question; we will inquire; we will verify."

Towns reportedly requested that Liddy submit a restructuring and repayment plan prior to Thursday's hearing, but did not receive any such document.

In the rest of the financial realm, E*Trade Financial Corp.'s bonds held in there despite a downgrade from Moody's Investors Service.

A trader placed the 7 3/8% notes due 2015 at 54.5, the 12½% notes due 2017 at 63.25 and the 8% notes due 2011 at 64.5. Another quoted the 8% notes at 64 bid, 66 offered and the 7 7/8% notes at 54 bid, 55 offered.

Moody's cut E*Trade to Caa3 from B2, citing the loss of value for some bondholders as the company uses debt-for-equity swaps to deleverage.

"Given E*Trade's challenging circumstances, such an exchange would be tantamount to default avoidance, and we would thus consider it a distressed exchange," Moody's vice president Alexander Yavorsky said in a statement.

MGM debt remains weak

MGM Mirage's term loan posted some losses on Thursday because a couple of sellers came in to take advantage of the gains that the debt experienced on Wednesday, according to traders.

The term loan was quoted by one trader at 76 bid, 79 offered, down from Wednesday night's levels of 79½ bid, 81½ offered, and by a second trader at 78 bid, 80 offered, down from 80 bid, 82 offered.

The company's bonds were also mostly lower, the 6 5/8% notes due 2015 down 2 to 3 points at 62.5 bid, 64 offered.

On Wednesday, the company disclosed an amendment to its credit facility that provides for a number of repayment scenarios, and following this news the term loan traded up to the low-80 context from around 74 bid, 75 offered.

In order for the amendment to become effective, MGM Mirage had to raise at least $2.5 billion from certain offerings - a feat that was accomplished as the company announced on Thursday the completion of a $1 billion public offering of common stock and the pricing of $1.5 billion senior secured notes sold in a private offering.

Of the total amount of notes, $650 million are 10.375% notes that priced at 97.184% and $850 are 11.125% notes that priced at 97.344%.

Meanwhile, Station Casinos Inc.'s notes closed unchanged to down a point following the company's earnings release.

A trader deemed the 6½% notes due 2014 unchanged at 4.5. But another called the 6% notes due 2012 and the 7¾% notes due 2016 slightly softer at 35 bid, 36 offered.

The casino operator posted a narrower loss for the first quarter, coming in at $33.7 million, versus $70.9 million the year before. Revenues fell 20% to $282.7 million.

Broad market mostly lower

In other distressed issuer news, Rite Aid Corp.'s 9½% notes due 2017 once again traded actively. However, the bonds continued to slip, losing half a point to end around 55.

Ford Motor Credit Co.'s 7 3/8% notes due 2009 inched up some to 96 1/8.

Washington Mutual Inc.'s bank holding company paper also remained strong, the senior issues, such as the 4% notes due 2009, at 83 bid, 84 offered and the subordinated paper, like the 8¼% notes due 2010 at 58.5 bid, 59.5 offered.

Realogy Corp.'s paper was "down a lot," a trader said, just one day after the company reported a $259 million quarterly loss.

The trader quoted the 10½% notes due 2014 at 37 bid, 38 offered, down 4 points. The 11% notes due 2014 lost 2 points to 23.5 bid, 24.5 offered.

After its earnings report, Blockbuster Inc.'s 9% notes due 2012 dropped 3 points to 54. The declines came as the company posted a narrower net income of $27.7 million for the first quarter. That compared with income of $45.4 million in 2008.

Revenues fell to $1.12 billion from $1.39 billion the year before.

A trader saw Forest City Enterprises Inc.'s 3 5/8% convertible bonds due 2011 firm by 4.5 points to 73.5 after the Cleveland-based commercial and residential real estate concern did a $300 million equity deal, pricing 45.5 million class A shares at $6.60 per share. It also gave underwriters a greenshoe to purchase up to 6.8 million additional shares, which would boost total proceeds to about $345 million. He said the convertible issue was "well-busted," with those notes trading at a yield of 17.5%

The trader noted that there was little impact on the company's 7 5/8% straight junk bond issue due 2015, which he said was quoted in the mid-50s, but which "is never seen around, because it's so tightly held."

Sara Rosenberg and Paul Deckelman contributed to this article.

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