Navistar is day's 'big mover' amid poor earnings, revised guidance; Exide up ahead of numbers

By Stephanie N. Rotondo

Phoenix, June 7 - Navistar International Inc. was the name of the day in the bond market Thursday, after the company reported "bad earnings," a trader said.

Technically, the credit (B1/BB-/BB) is considered high yield, but with the bonds losing 5 to 7 points on the day, the name could soon move deeper into distressed territory.

"The bonds were very volatile," a trader said, deeming the 8¼% notes due 2021 the most active security of the day.

Meanwhile, Exide Technologies Inc. released its earnings after the bell, reporting a narrower loss for its fiscal fourth quarter. Ahead of the release, the battery maker's bonds were inching upward, according to traders.

And, a trader said that Residential Capital LLC's debt was on the decline during Thursday trading. However, other traders noted that a credit-default swap auction was held Wednesday and that the lower prints could be indicating the outcome of the results instead of real-time markets.

Navistar taking its lumps

Despite its assertions that it has enough cash to weather its current storm, bond investors were not reacting positively to Navistar International's quarterly report Thursday, pushing the bonds down 5 to 7 points.

In addition to reporting earnings that disappointed, the company also cut its guidance - again - and announced a management shift.

A trader said there was "a ton of trading" in the 8¼% notes due 2021, estimating that at least $77 million changed hands.

He saw the paper open at par ½ - down from levels around 103 on Wednesday - and close at their lows at 96 bid, 96¼ offered.

"They looked like they were a little heavy at the end of the day," he said, noting that there continued to be "sellers around."

"Maybe they'll find a floor, who knows," he said.

The trader also commented that the "stock was being clobbered."

The equity (NYSE: NAV) fell $4.05, or 14.37%, to $24.11.

Another trader said Navistar "was a big mover." He placed the issue around 97, compared to 103 bid, 104 offered previously.

For the second time in 2012, Lisle, Ill.-based Navistar - a manufacturer of medium and heavy trucks and mid-range diesel engines - revised its 2012 forecast, lowering profit to even to $2 per share. That was down from its first revision in March of as much as $5.25 per share.

The weakened forecast came as the company continued to struggle to get its 13-liter engine in line with Environmental Protection Agency requirements.

Navistar also reported a loss for the quarter, which caught many by surprise. Net loss was $172 million, or $2.59 per share, compared to a $74 million profit, or 93 cents per share, the year before.

The loss was attributed in part to a decline in market share in the United States and Canada, which fell to 16%, versus 24% as of Oct. 31, 2010.

In an afternoon comment published Thursday, Gimme Credit LLC analyst Vicki Bryan noted that Navistar was continuing to struggle against its EPA certification issues, as well as ongoing warranty problems for its 2010 landmark engines. The company had noted these same issues in the first quarter, she wrote in the report, and the fact that they have yet to be resolved was troubling.

"If Navistar doesn't get a handle on these problems, and fast, a dark cloud could develop that could taint future prospects on sales and persist long after the problems are fixed," Bryan wrote.

Exide rises pre-earnings

Exide Technologies' also put out earnings Thursday, which came after the market closed.

A conference call is scheduled for 9 a.m. ET Friday.

Ahead of the release, the Milton, Ga.-based company's debt was inching upward.

A trader called the 8 5/8% notes due 2018 "probably up a point" at 75½ bid, 76 offered at the close.

Another trader saw paper around 76 pre-numbers.

"We'll see how it trades post-numbers," he said.

For the fourth fiscal quarter of 2012, Exide reported improved net sales of $782.6 million, compared to $774.5 million the year before. Net loss therefore shrank to $2.7 million, or 3 cents per share, versus $13.7 million, or 18 cents per share, in fiscal 2011.

The company also managed to move from cash burn to cash flow, generating free cash flow of $55.7 million.

That compared to a burn of $14.7 million in the previous year.

The improved results benefited from lower restructuring and impairment charges, the company said in a press release.

For fiscal 2012 as a whole, net sales gained 7% to $3.1 billion. Net income was $56.7 million, of 69 cents per share, compared to $26.4 million, or 33 cents per share, in fiscal 2011.

As of March 31, Exide had cash and equivalents of $155.4 million, as well as $152.8 million available under its revolving credit facility. Cash was down from 4161.4 million, but the available credit facility balance was up from $144 million.

ResCap settles into CDS

A trader called Residential Capital's unsecured debt down about 3 points on the day.

However, other traders noted that a CDS auction was held on Wednesday and that the lower prints could be a result of that event and not actual market prices.

The first trader saw the unsecured trading at 17 5/8, the same price as the CDS settlement.

Another trader, however, said the unsecured paper remained around 21.

In the 9 5/8% secured notes due 2015, the first trader deemed the issue up slightly at 931/4.

Another trader also placed the issue around the 93 context.

ResCap, the Minneapolis-based mortgage lending arm of Ally Financial Inc., filed for bankruptcy on May 14 and has since been attempting to sell off its mortgage assets. In a Reuters interview Thursday, the company's top executive said he expected more bidders for the assets to emerge.

"There clearly appears to be some real interest out there from other bidders," Tom Marano, chief executive officer, said in the interview.

Marano declined to name perspective buyers.

Strength remains in market

Elsewhere in the distressed debt realm, a trader said Bon-Ton Stores Inc.'s 10¼% notes due 2014 gained nearly 3 points in "minimal trading," ending around 781/4.

Another trader called the notes "up a little bit," around 78.

Traders also deemed Eastman Kodak Co.'s second-lien issues - like the 9¾% notes due 2018 - on the firmer side.

One trader placed the notes around 64, while another quoted the paper at 64½ bid, 65 offered.

The second trader also said that MEMC Electronic Materials Inc.'s 7¾% notes due 2019 were moving higher into the high-60s, pegging them at 68½ bid, 69½ offered.

That compared to recent lows around 63, he said.

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