Ford firms more on debt-cut plan; little GM 'going concern' impact; Anixter, Digicel talk out; funds off $660 million

By Paul Deckelman and Paul A. Harris

New York, March 5 - Ford Motor Co.'s bonds were the upside stars of an otherwise quiet and dreary session Thursday, as junk generally softened in line with the renewal of the stock market's slide. The carmaker's benchmark long bonds held most of the strong gains they had notched in late trading Wednesday after the announcement of Ford's ambitious $10 billion debt-reduction plan, while most of the other issues in its capital structure, and that of its Ford Motor Credit Co. subsidiary, firmed smartly.

The news coming out Ford's larger but more financially fragile domestic arch-rival, General Motors Corp., was all bad, with the Detroit giant's auditors officially proclaiming what was once thought to be unthinkable - that GM, once the dominant carmaker in both America and the world, might not be able to survive as a "going concern" if present auto industry trends continue. However, while GM's shares steered into a ditch on that news, and on renewed bankruptcy buzz coming from the company itself, the bonds were seen little changed.

Outside of the autosphere, MGM Mirage's bonds, beaten and battered over the past several sessions, were actually seen a little better on the day.

In the primary market, price talk emerged on Anixter International Inc.'s and Digicel Ltd.'s pending five-year note deals, which are each expected to price at a sizable discount to par in order to boost yield into the double-digit percentage levels.

Junk funds show $660 million outflow

Meanwhile there was more - and more forceful - evidence that the cash flows of the high-yield asset class have turned negative, market sources said.

AMG Data Services of Arcata, Calif., reported a $660.4 million outflow from high-yield mutual funds for the week to March 4, the second consecutive outflow trailing the previous week's $255.6 million, and the biggest weekly drain since the week of Sept. 28, 2005 which saw an outflow of negative $1.3 billion, a high-yield syndicate source said.

Over the past two weeks, the junk funds have lost $916 million, according to a Prospect News analysis of the AMG figures - a clear break from the previous trend, which had seen seven consecutive inflows since the year began, totaling $3.608 billion. That strongly positive pattern had also seen an astounding 12 consecutive weeks of inflows dating all the way back to the week ended Dec. 3 and totaling $5.425 billion, according to the Prospect News analysis.

Including the latest week's outflow number, the year-to-date net inflow for the weekly-reporting funds has been brought down to about $2.692 billion, according to the analysis, from around $3.352 billion the week before.

That massive multi-billion-dollar flow of funds into high yield is seen as having been primarily responsible for the recently strong pace of new issuance, as well as the positive year-to-date returns seen in Junkbondland in this first part of the year, versus last year's staggering 25%-plus loss.

A market source also said that in the latest week, funds which report on a monthly basis rather than doing so weekly showed an inflow of $504.9 million, after having been unchanged over the previous two weeks. For the year to date, such funds have seen a cumulative inflow of $4.402 billion.

The source also said that on an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $7.094 billion more has come into the funds than has left them.

All cumulative totals can include unannounced revisions and adjustments to figures from prior weeks.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash to and from the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

Market indicators keep slipping

A trader saw the widely followed CDX High Yield 11 index of junk bond performance - which had lost 1/8 point on Wednesday - down again on Thursday, quoting it down another 7/8 point to 67½ bid, 68 offered.

The KDP High Yield Daily Index meantime lost 46 basis points to end at 49.79, while its yield widened by 22 bps to 14.62%.

In the broader market, advancing issues remained behind decliners, by a two-to-one margin.

Overall market activity, measured by dollar-volume totals, fell by nearly 12% from the levels seen in Wednesday's session.

A trader said "it was a pretty ugly day all around," although junk "came back a little at the end."

Another trader said that apart from the activity in the auto sector, particularly in Ford paper, "it was a little bit on the quiet side." He called high yield "probably off a good point, two points," on "not a lot of volume."

He opined that "everything was in across the board, paper was off."

The whole market, he concluded "has gotten crushed."

Junk got absolutely no help from equities, whose participants were preoccupied with the bad news coming out of GM, as well as fresh concerns about another struggling corporate icon once thought to be "too big to fail," Citigroup Inc., whose shares dipped under the $1 mark in intraday trading for the first time ever. Against that somber backdrop, the bellwether Dow Jones Industrial Average, after its one-session respite on Wednesday, was back on the slide for the sixth time in the last seven sessions and fell 281.40 points, or 4.09%, to end at 6,594.44, the lowest level in 12 years. The wider Standard & Poor's 500 index was down 4.25%, while the Nasdaq composite index lost an even 4%.

Ford cruises comfortably

A trader said Ford Motor Co.'s bonds "were up big, as you can imagine."

Another trader saw Ford's 7.45% bonds due 2031 up 1½ points on the day to 27.5 bid, 28.5 offered; he had seen those bonds shoot up about 6 or 7 points on Wednesday afternoon on the news of the Dearborn, Mich.-based carmaker's debt-restructuring plan, which aims to take out $10.4 billion of its more than $25 billion of debt by offering by offering cash or company shares to holders of its bonds, convertible notes and term-loan debt.

A market source said the Ford long bond was one of the busiest junk issues of the day, with almost $60 million having changed hands by mid-afternoon - more than twice the volume at that point of the busiest non-Ford issue. Although that issue remained up solidly from the pre-news levels in the upper teens at which it had traded on Wednesday, the source actually saw the bonds ending off ½ point at 27.5.

At another desk, a trader said that the issue of 9½% notes due 2010 was "the big one that is moving around - specifically, that's the main one that can be tendered in the whole exchange thing," with Ford having put it at the top of the priority rankings of the bonds it is looking to take out via its planned tender offer. He saw the bonds at 51 bid, 53 offered, "up 20 points since midday on Wednesday," before the announcement of Ford's debt plan.

The market source meantime said that bonds of Ford's auto-loan financing arm, Ford Motor Credit Co., were mixed in fairly busy trading on the day. One of the biggest gainers in the Ford complex was Ford Credit's actively traded 7¼% notes due 2011, which gained 5 points on the day to end at around 54. Its 7% notes due 2013 were up a point at 49 bid while its 7 3/8% notes slated to come due on Oct. 28 were up nearly 2½ points at 82 bid. However, Ford Credit's 7 3/8% notes due 2011 were quoted down 4 points at 58 bid.

The generally positive junk bond market response to Ford's debt-cutting gambit reflected the fact that, in the opinion of analyst Shelly Lombard of the Gimme Credit independent research service, "Ford figured out an easier way to do what General Motors is trying to do the hard way." Lombard said in a research note Thursday that with both big carmakers trying to convince their bondholders to go along with a debt-cutting plan, "GM and its bondholders are likely arguing about what the business, and therefore the equity, will be worth in the future, [while] Ford is essentially allowing its bondholders to take some money and run." At the same time, she said that bondholders "inclined to bet on Ford's future can stick around."

However, the analyst did caution that while "deleveraging is always good," Ford's future "still depends on car sales which are looking pretty bleak right now." The estimated $500 million of interest costs the company will save, by itself, "won't be enough to get Ford to positive free cash flow" if sales don't pick up. Gimme Credit currently rates Ford's bonds as an "underperform," although the service is currently reviewing its recommendation.

GM sits in neutral despite bankruptcy fears

While Ford was cruising, one might have expected GM to be getting a bruising on its latest news - but in this case one would have been wrong. A trader saw GM's benchmark 8 3/8% bonds due 2033 up ½ point on the session at 12.5 bid, 14.5 offered.

Another trader said the GM bonds "continue to trade sideways," with its 7.20% notes due 2011 at 16 bid, 17.5 bid, unchanged on the day.

He said there was little movement because the warning of a possible bankruptcy filing from the company and the "going concern" advisory from its auditors had been widely expected.

Market participants were "not horribly shocked.

"I would hope that [investors] would have some inkling that might have been happening."

A market source saw the '33s little changed around 13 bid, after an early detour in small trades to levels as low as 6, despite those separate warnings from the company and its auditors raising doubt whether the once-mighty automotive giant can even survive in its present form. However, those red flags caused the upfront price on credit-default swaps contracts protecting GM bondholders against a likely event of default to rise still further from their already-stratospheric levels, a sign of increased market expectations of a default. The upfront cost on a contract protecting $10 million of debt rose to 85% from 83.5% on Wednesday, plus the customary $500,000 annually

The warnings also sent Dow component GM's New York-Stock Exchange-traded shares skidding to $1.86, a loss of 34 cents, or 15.45%, on the day. Volume of 16 million shares was about 20% less than usual. GM stock has lost more than 90% of its former value over the past year.

GM - which earlier this week reported a 52% slide in February sales from year-earlier levels, the latest in a long string of big sales declines - warned in a filing with the Securities and Exchange Commission that its independent auditor, Deloitte & Touche, has issued an opinion that the company's "recurring losses from operations, stockholders' deficit and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern."

GM, which has submitted its Viability Plan to the government in support of its request for federal bailout money totaling $30 billion -- $13.4 billion already provided at the end of 2008 and another $16.6 billion requested - further said: "If we fail to [execute the Viability Plan successfully], we would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the U.S. Bankruptcy Code." The GM plan assumes that while vehicle sales will decline further this year, they should begin to recover in 2010; however, the company cautioned in the filing that given the continuing pattern of sales declines, there is "no assurance that the global automobile market will recover or that it will not suffer a significant further downturn."

The "going concern" notification was hardly unexpected, and merely officially confirms what has long been public knowledge already - that the company is on the ropes. When it recently reported its 2008 loss of nearly $31 billion, GM had warned the investment community that such a notice was likely to be included in its scheduled filing of those results. Such a "going concern" notice gives some of the company's lenders the right to call for immediate repayment of their loans, but GM said in its filing that it had negotiated waivers covering its $4.5 billion secured revolving credit facility, a $1.5 billion term loan and a $125 million inventory financing facility in order to head off such an occurrence.

However, the new waivers will allow those lenders to call those loans if the Treasury Department rejects GM's restructuring plan and request for additional aid and forces the carmaker to repay the $13.4 billion it has already borrowed from the government.

GM also said in its filing that it has a $1 billion issue of outstanding series D convertible debentures slated to come due on June 1, with the option of repayment on maturity not covered by the funding plan. GM starkly stated that if it is unable to restructure the debentures or otherwise satisfactorily deal with that obligation, the resulting default and likely cross-defaults on other debt "would potentially require us to seek relief through a filing" with the bankruptcy courts.

MGM bounces despite Deutsche Bank news

Outside of the autosphere, a trader said that after having gotten whacked over the last few sessions, MGM Mirage "actually came back."

He saw its 13% notes due 2013 come "all the way back," to the 71-72 area from levels as low as 66 bid earlier in the week.

The bonds had fallen into the mid-60s in response to the Las Vegas-based casino giant's recent decision to draw down the remaining $842 million of what at one time was a $4.5 billion revolving credit agreement. That move raised fears among some stock and bond investors that the company was anticipating more hard times ahead that might preclude it from making use of that revolver availability. There was also concern on the bond side that the drawdown increased the amount of structurally senior debt MGM Mirage has outstanding, leaving the bondholders even more disadvantaged than before in the event of any kind of restructuring scenario.

At another desk, a trader saw the company's 6¾% notes due 2013 up by a point or two to 30 bid, 32 offered.

A market source saw its oversold 6¾% notes due 2012 up as much as 5 points on the day to the 32 level, while its 7 5/8% notes due 2017 were also five-point winners to end at 35.

However, the company's most actively traded issue, the 6% notes coming due on Oct. 1, were seen actually down almost 2 points to the 45 mark.

The bonds, for the most part, were able to shrug off new financing worries referenced in news stories late Wednesday and on Thursday indicating that MGM Mirage and joint-venture partner Dubai World have apparently failed to reach a deal with Deutsche Bank AG over the final $1.2 billion in financing needed to complete their ambitious CityCenter project on the famed Las Vegas Strip.

The $11 billion complex, which includes new hotels and casinos, condominium buildings and retail space, was back-burnered by MGM and Dubai World some months ago as development financing tightened up.

The news reports quoted unidentified industry sources as saying the talks involved an arrangement under which Deutsche Bank would contribute its adjacent Cosmopolitan resort to CityCenter and provide a $1.2 billion loan. In return, the reports said, Deutsche might take an equity stake in the MGM property.

The failed negotiations are being cited as a key reason why MGM earlier this week delayed the filing of its fourth-quarter earnings release. The company also warned at that time that it could very well fall out of compliance with the financial covenants in its credit facility, given deteriorating gaming industry conditions.

Blockbuster bounce seen

A trader said that Blockbuster Inc.'s 9% notes due 2012 "are still trading flat," or without their accrued interest, a status they had achieved earlier in the week when the market was rife with speculation that the Dallas-based movie-rental company was considering a bankruptcy filing after it hired the turnaround specialist law firm of Kirkland & Ellis LLC to help it obtain financing and explore strategic restructuring options.

Blockbuster specifically denied having any plans for a Chapter 11 filing.

On Thursday, he saw the bonds having "come up off their lows a little bit, maybe" trading around a 42 bid, 44 offered context. He said that they were "up a little bit from the lows in the high 30s" that the bonds hit on that bankruptcy buzz, "but still down from where they were trading, when they were trading with accrued."

WaMu rises on recovery valuation scenarios

A trader said that Washington Mutual Inc.'s holding company notes "have been up over the last week or so," pegging the senior holdco 4% notes that were to have been redeemed on Jan. 15 as trading in a low-80s context, around 80 bid, 82 offered.

He said the bankrupt Seattle-based savings and loan company's subordinated junior holding company notes "have been up about 10 points over the last week," trading in a 49-51 context.

The bonds, he said, were rising "as general estimates come out on what the debt recovery is going to be."

New Plains bonds seen easier

A trader said Plains Exploration & Development Co.'s recently priced 10% notes due 2016 were offered at 91.5, with no bid.

That was down from the 92.5 bid, 93 offered level at which the Houston-based independent energy exploration and production company's bonds had been trading late Wednesday.

The company priced a downsized $365 million offering of those notes at 92.373 on Tuesday.

Anixter talks $200 million

Anixter International Inc. set price talk for its $200 million offering of five-year senior bullet notes (Ba2/BB+/BB+) at 11¼% to 11½% with an expected discount that would see the note pricing in the mid-90s on Thursday.

The books were set to close Thursday afternoon.

Late Thursday no terms had emerged, and the deal is expected to price Friday, an informed source said.

Banc of America Securities, JPMorgan and Wachovia Securities are joint bookrunners for the public offer. Scotia Capital is the co-manager.

Proceeds will be used to repay short-term debt and for general corporate purposes.

Digicel sets talk, covenant changes

Digicel Ltd. set 15% yield talk on its $435 million offering of senior unsecured notes due 2014 (confirmed B1//existing B), and expects to discount the notes to an issue price around 90.

The Jamaican wireless services provider, which according to an emerging markets fund manager is marketing its bonds mainly to U.S. high-yield accounts, also introduced significant covenant changes (for details see related story in this issue).

The Rule 144A for life deal, which is being led by Citigroup, JPMorgan and Credit Suisse, is expected to price on Friday.

Proceeds will be used to acquire an equity interest in the prospective issuer's sister company, Digicel Holdings (Central America) Ltd. and for general corporate purposes.

Digicel Holdings Central America launched operations in Honduras and Panama in late 2008, according to a market source.

Elsewhere, Mexico's Cemex, SAB de CV's proposed dollar-denominated bond deal (//BB), its first to feature high-yield covenants, is struggling, market sources say.

The negative buzz on the deal began taking hold as early as late last week.

The roadshow was expected to end Wednesday.

No price talk has been heard.

The Citigroup-led deal was launched at benchmark size. However what began as an expected offering in the context of $500 million may now be reduced to half that amount or less, market sources said on Thursday.

The company's peso-denominated shares fell by 15.44% on Thursday, according to information posted on the company's web site. Its dollar-denominated shares, which trade on the New York Stock Exchange (NYSE: CX), fell 14.61%.

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