Ford Motor posts gain, bonds improve; CIT Group debt stays active, weaker; broad market firms

By Stephanie N. Rotondo

Portland, Ore., July 23 - Traders reported that Thursday was an overall firm day for the market - the Dow Jones Industrial Average topped 9,000 for the first time in six months - with "huge inflows" coming in.

"It was another ripping day," said one trader, who noted the "huge inflows" during the day's session. He added that trading volume hit nearly $2 billion.

"Market was very strong today, strong like a bull," said another source.

"Everything is being bought up," commented yet another trader. "Credit is in demand." However, "there are plenty of bids for few offers."

But another source had a different take.

"It was a very boring day," he said. "Even more so than usual because everyone was trying to buy the same things."

Ford Motor Co. was one of the things being bought up, according to market sources. The company's improved second-quarter results - the automaker actually turned a profit - helped the bonds drive upward.

In keeping with the general theme of the last couple of weeks, CIT Group Inc. remained the day's most active issuer - and was one of the few market losers. Traders saw the bank's debt dropping as much as 4 points on the day as the bankruptcy debate raged on.

Ford profit helps bonds

Ford Motor's debt got a boost after the Detroit automaker posted a profit for the second quarter of 2009, even amid the global struggles of carmakers.

One trader said the longer issues - such as the 7.45% notes due 2031 - were "definitely up a bunch." He saw the bonds hit 70, a gain of 3 to 4 points on the day, with about $15 million trading.

The trader also saw about $25 million of the 7 3/8% notes due 2009 changing hands between 99 and par.

Another trader called the name active, placing the 7.45% notes at 70, up from 66 bid, 67 offered. He echoed the levels of the first trader in the 7 3/8% notes, adding that about $1 million of the debt traded at par.

"It looks like paper was stronger," he said. "They have just been crankin' recently."

Another source deemed the 7% notes due 2013 linked to Ford Motor Credit Co. more than 2 points better at 86 bid.

For the second quarter, Ford posted net income of $2.3 billion, or $0.69 per share. That compared with a net loss of $8.7 billion, or $0.63 per share, in the second quarter of 2008.

Revenue fell $11 billion to $27.2 billion.

The company cited cost cutting and debt reduction as the reason for its improved numbers.

"While the business environment remained extremely challenging around the world, we made significant progress on our transformation plan," said Alan Mulally, Ford's president and chief executive, in a statement. "Our underlying business is growing progressively stronger as we introduce great new products that customers want and value, while continuing to aggressively restructure our business and strengthen our balance sheet."

"Ford delivered a very solid quarter, and our transformation plan remains well on track," added Lewis Booth, executive vice president and chief financial officer. "We strengthened our balance sheet, reduced cash outflows and improved our year-over-year financial results despite sharply lower industry volumes."

Still, at least one market watcher noted that it was too soon to tell if the improved figures meant the company was back on track.

"In its second quarter results, Ford delivered exactly what we wanted to see - lower cash burn," wrote Gimme Credit analyst Shelly Lombard in an afternoon comment. "But it's still too early to tell whether Ford has got its swagger back since some of the improvement was due to market share and price gains that Ford probably picked up at General Motors and Chrysler's expense while they were in bankruptcy.

"Obviously the more Ford can minimize its cash burn, the better the chance it can get through this recession without government assistance," Lombard continued. "If nothing else, Ford's improved results should make it easier for the company to reduce leverage by tapping the capital markets in the future."

CIT remains active, weaker

As per usual these days, CIT Group was "exceedingly active," in the words of one trader. The company's bonds continued to drop value as news reports indicated that a bondholder group responsible for the bank's recent rescue financing might want tp push the company into bankruptcy.

A trader said CIT paper was "for the most part down a couple points," its floating-rate notes coming due in August trading between 79 and 82. He saw the 4 1/8% notes due 2009 trade down 1 to 2 points around 60.

"And the rest of it is just scattered all over the place," he remarked.

At another desk, a trader placed the floaters around 80, down a couple points.

Several news outlets, citing unnamed sources familiar with the matter, claimed that the bondholder group that loaned $3 billion to the struggling financial institution might be looking to push the company into Chapter 11 once a tender offer for the 2009 paper is completed in late August. CIT had previously said that the rescue funds might not be enough to fund obligations and that if its tender was not successful, a bankruptcy filing could be imminent.

But the market remains mixed on whether or not the filing would ever occur. CreditSights analysts on Wednesday called it a "hollow threat," while still others see it as a likely possibility.

In fact, Senate Banking Committee chairman Christopher Dodd said in a Bloomberg report that the government should not rule out coming to the 101-year-old institution's rescue.

"I wouldn't rule out the possibility of government intervention financially," Dodd said in the interview. "Maybe there are some alternative ideas that would allow the company to survive in an altered state, but still allow it to provide the assistance and support they have to smaller business."

With all the turmoil surrounding its recent predicament, CIT is also facing losing customers, as some manufacturers are instead relying on other financiers for money. Even Microsoft Corp. is walking away, announcing earlier in the week that it had scrapped a five-year financing agreement with CIT.

And, that is to say nothing of how market players are reacting to the terms of CIT's recent bailout.

"The more we hear about the loan facility and the proposed tender for $1.0 billion of bonds maturing August 17, the more disgusted we are," wrote Gimme Credit analyst Kathleen Shanley in a morning report to clients. "It is not so much the onerous terms that trouble us, though any firm willing to borrow at Libor plus 10% (with an above-market 3% Libor floor), plus a 5% commitment fee on advances (and assorted other fees) is clearly on the ropes. It is not so much that CIT's payday lenders are securing their interests with a 5:1 collateral coverage covenant (based on book value; there is a 3:1 fair value coverage requirement).

"Clearly no one in their right mind would lend to CIT on an unsecured basis these days," she said. "No, what outrages us is the way that large and influential bondholders evidently feel free to run roughshod over the interests of smaller holders, particularly holders of the retail InterNotes."

Shanley also commented on rumors of the pre-packaged bankruptcy proposal reportedly being pushed by the bondholder group.

"If the Bloomberg story is accurate, then the rescue facility will have done nothing to save CIT, but will have been merely a sham to enrich powerful creditors at the expense of others, when all the unsecured senior debt obligations should rank equally in a default," Shanley wrote.

Broad market firms

Elsewhere in the world of distressed debt, First Data Corp.'s 9 7/8% notes due 2015 were "a little better," according to a trader. He quoted the bonds at 75.5 bid, 76 offered, on $50 million traded.

Rite Aid Corp.'s "always active" 9½% notes due 2017 gained another point, a trader said, to around 69.

Spansion Inc.'s 11¼% notes due 2016 were "up again," another trader said. He pegged the issue at 61 bid, 63 offered and the floating rate notes due 2013 at 84 bid, 85 offered.

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