GMAC, Ford Credit soar on CP access; MGM Mirage bringing new benchmark; Trump up on Marina deal

By Paul Deckelman and Paul A. Harris

New York, Oct. 29 - The auto-loan financing arms of General Motors Corp. and Ford Motor Co. - GMAC LLC and Ford Motor Credit Co. - were sharply higher in busy trading, helped by Tuesday's late news that the lenders had been granted access to the Federal Reserve's new commercial paper facility, which the Fed is using to try to unfreeze the short-term commercial credit market. The bonds of those lenders' respective carmaker parents were also better on the session.

MGM Mirage was heard by high yield syndicate sources to be bringing a new benchmark-sized offering of secured notes to market - and that news sent the Las Vegas-based gaming giant's shorter-dated paper solidly higher on investor expectations that the company will thus be in better shape to pay off those bonds when they mature over the next year or two. However, its longer dated notes and bonds retreated on supply overhang concerns.

Also in the gaming arena, Trump Entertainment Resorts Inc.'s bonds shot up, at least initially, on the news that the Atlantic City, N.J.-based gaming operator and the prospective buyer of one of its casinos there had amended their previously announced agreement for Trump to sell the property, with somewhat easier terms overall making it more likely that the deal will actually go through.

And there was active trading in the bonds of fallen financials Lehman Brothers Holdings Inc. and Washington Mutual Inc.

MGM Mirage plans benchmark deal

In the primary market, MGM Mirage began quick-shopping a benchmark-sized offering of five-year senior secured notes (Ba1/BB) on Wednesday. Standard & Poor's rated up to $1 billion of the notes.

Price talk is expected Thursday morning, according to an informed source who added that pricing is expected on Thursday afternoon.

Banc of America Securities, BNP Paribas, UBS Investment Bank, RBS Greenwich Capital, Deutsche Bank Securities, Morgan Stanley and Scotia Capital are joint bookrunners for the bank debt refinancing and general corporate purposes deal from the Las Vegas-based developer and operator of gaming and resort properties.

The buzz on the MGM five-year secured notes has them coming with a coupon of between 11% and 12%, at a significant discount to yield 15%, sources said.

The benchmark-sized deal, which had been the subject of extensive premarketing, was heard to be playing to a $450 million order book, the sources added.

MGM Mirage existings yield 15%

Most of the MGM Mirage existing bonds were basically at 62 bid, plus or minus, said a mutual fund manager, adding that at those prices the yields are approximately 15%.

However the 7 5/8% senior subordinated notes due 2013 were quoted at 42 bid, 46 offered, the investor added, noting that the gaming and resort company's maturity curve includes notes due in 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017.

Given the trading levels of the existing bonds, 15% "sounds kind of tough," the investor said.

Later a sell-sider who had taken a close look at the deal said that the yield might come north at 17% or higher.

MGM Mirage should not have to compete very hard for attention.

The only other deal in the market is Brocade Communications Systems Inc.'s $400 million offering of six-year senior unsecured notes (B2/BB-), also via Banc of America Securities, with joint bookrunner Morgan Stanley.

Price talk is expected later this week, according to an informed source. The deal could price late this week or early next week.

The Brocade roadshow began Oct. 20 in Los Angeles, and returned to California, home to both Brocade and the target company, Foundry Networks, Inc.

Last Friday a special meeting of Foundry shareholders, convened to vote on Brocade's $19.25 per share cash offer, was adjourned because of "recent developments related to the transaction," driving Foundry's share price (Nasdaq: FDRY) down by 25.6% on that day.

The shareholders meeting was rescheduled for Wednesday after the market close.

No news on that meeting had surfaced as Prospect News went to press Wednesday night.

More liquidation seen

Reaction to the move by Federal Reserve Bank's Federal Open Market Committee lowering the Fed Funds by 50 basis points to 1% was muted among high-yield sources.

"There is still a lot of liquidation left to happen," one money manager said.

"This doesn't seem like a genuine rally," the source said, referring to the two-day march higher in the high-yield and bank loan secondary markets.

"When people get a chance to sell stuff they do."

Another mutual fund manager was also skeptical as to whether the Tuesday-Wednesday rally was a genuine rally, in which bonds and bank loans would continue to march higher.

Both the high-yield and the leveraged loan markets were up ½ point on Wednesday, said the source, who plays in both.

"I don't think it's a genuine rally, but then I'm not sure people will actually recognize a genuine rally until it really gets going," the source added.

Meanwhile a sell-side source also doubted the sustainability of the Tuesday-Wednesday rally.

However, the banker added, people are expecting that there will be at least one spot this year where there will be a decent rally.

"Then next year they are expecting us to take another leg down," the banker added.

Market indicators continue rise

The widely followed CDX High Yield 11 index of junk bond performance, which had jumped by 1 9/16 points on Tuesday, gained another ½ point on Wednesday, a trader said, quoting it at 80 bid, 80½ offered. The KDP High Yield Daily Index meantime jumped by 72 basis points to 53.70, as its yield decreased by 20 bps to 16.24%.

In the broader market, advancing issues led decliners by a better than five-to-three margin. Overall market activity, reflected in dollar volumes, fell nearly 14% from Tuesday's pace.

"I'm not saying everything was up," a trader said, "but there was a much better tone."

He suggested that there seemed to be a growing consensus that "although there will still be credit-specific blowups" that may cause credits to fall sharply, a lot of people are starting to believe that "generally, we may be hitting the bottom" of the prolonged junk market downturn that began in early June.

"We saw Trump, Ford and GM/GMAC this morning," another trader said, "and then that quieted down a little in the afternoon as people kind of waited for the Fed."

As had been widely predicted, the Federal Reserve's policy-setting Federal Open Market Committee concluded its regularly scheduled two-day meeting with another cut in its key interest rate - a 50 bps reduction in its target for the Federal Funds rate, the interest banks charge on overnight loans, to 1%, the lowest level at which it has been since 2004. In its communiqué following the meeting, the central bank said it was taking that step because "intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and business to obtain credit."

It was the second rate cut in less than a month, underscoring the severity of the ongoing credit crunch and the need for a strong Fed response - the FOMC had also cut that rate by 50 bps on Oct. 8, in coordination with rate cuts by other central banks. And the Fed may not be finished cutting the Fed Funds target, with some analysts anticipating such a cut at its final meeting of the year in December. They noted that the Fed warned that "downside risks to growth remain" - seen by those analysts as a signal that Fed chairman Ben S. Bernanke may be ready to pull the trigger yet again.

But the trader noted that once the Fed was out of the way, things picked up. "People took a deep breath, said 'OK, there were no surprises,' and they were willing to respond. A lot of things had been left at loose ends from the morning, or from [Tuesday], when accounts weren't really responding to inquiries - they were waiting to see what happened this afternoon."

But once it was established that there had been another rate cut, with the door possibly held open for a further reduction, "people definitely got involved."

GMAC gets CP boost, eyes becoming a bank

GMAC, in the words of a trader, "traded up a bunch today," on fairly active dealings, given a strong jump-start by the news, first announced late in the day Tuesday, that the big Detroit-based lender - which makes automobile loans to buyers of new GM cars, as well as mortgage loans through its Residential Capital LLC unit - had been granted access to a new commercial paper facility set up by the Federal Reserve to try to thaw out the frozen market for short-term paper.

A trader saw its 8% bonds due 2031 at 52 bid, 54 offered, which he called an 11 point jump, although some other traders saw it more like 8 or 9 point higher on the day, but around that 52ish level.

A market source saw the bonds open about 2 points higher than their Tuesday close at 42.5, and then push as high as the 52 mark, up nearly a full 10 points, before coming off that peak and appearing to stabilizing around 47. But the bonds headed back up later in the session to finish at 52, or a 9.5 point gain. Trading was very active, with numerous round-lot trades at higher levels.

Another trader, though, saw the 8s last traded on a round-lot basis around 54, which he called an 11½ point rise. He said at least $26 million of the bonds had changed hands.

He also saw GMAC's shortest-dated issue, the 8 5/8% notes coming due in May, at 88.5 bid, up 9 points on volume of some $16 million.

The most active GMAC issue of the day, he said, was its 6 7/8% notes due 2011, which went home at 59.25 bid, up nearly 8 points on the day, with turnover of at least $25 million.

Another market source pegged GMAC's 6 7/8% notes due 2012 some 9½ points higher at 58.5 bid.

Even GMAC unit ResCap went along for the ride, its 8% notes due 2012 seen firming to 18 bid from 16 bid, 18 offered earlier. The troubled Minneapolis-based mortgage lender's 8 7/8% notes due 2015 firmed some 4 points on the day to the 21 level.

GMAC, which said on Tuesday that it was accepted into the commercial paper program, could get up to $10 billion of liquidity from the facility, according to news reports, by selling the Fed the short-term notes through its investment grade rated New Center Asset Trust unit.

Cash-strapped GMAC meantime reportedly hopes to be able to access further federal capital; The Wall Street Journal reported that GMAC is seeking permission from regulators to convert to a bank holding company, a step which, if granted, would enable it to participate in the Treasury Department's $700 billion banking-industry rescue program. With bank holding status, GMAC could also directly borrow money at extremely favorable rates from the Fed's discount window, and could get temporary debt guarantees from the Federal Deposit Insurance Corp.

Ford Credit also in CP program

GM's counterpart and key rival, Ford Credit, also announced that it too has been given the OK to sell commercial paper to the Fed under the new facility, causing its bonds to also cruise higher.

A market source saw Ford Credit's 7% notes due 2013 open about 4 points above their Tuesday finish just below 50, and then continue to push up to 57 on a mixture of round-lot and smaller odd-lot trades.

At another desk, Ford Credit's 12% notes due 2015 were seen having jumped nearly 10 points to 67 bid.

GM, Ford bonds take upside ride

With GMAC and Ford Credit's bonds solidly better, the bonds of their respective parent auto companies went along for the ride.

GMAC's 49% owner GM's benchmark 8 3/8% bonds due 2033 were seen up 2½ points on the day, to 32 bid, a trader said, while another called them 2 points higher at 31 bid, 33 offered.

But a second trader saw the bonds as good as 35 late in the day, well up from 28 bid, 30 offered the session before.

Yet another had them finishing at 34 bid, 36 offered, which he said was 5½ points better.

Among the shorter-dated GM paper, a trader said the 7.20% notes due 2011 were up 4 points on a round-lot basis to 47 bid.

GM's 8¼% bonds due 2023 did even better, a market source said, up 8 points on the session to 36.5 bid, while its 7 1/8% notes due 2013 gained 5 points to the 38 mark.

Also spurring interest in the GM bonds were the continued news reports indicating that its talks with Cerberus Capital Management LP on a possible combination of GM with the other member of the traditional Detroit Big Three, Cerberus' 80%-owned Chrysler LLC, were moving along. News reports late Wednesday indicated that the parties had pretty much resolved the major issues in a proposed merger of the two automotive giants. However, other factors remain up in the air, including financing and the level of government support available for the combination.

GM is said to primarily be eyeing Chrysler for the roughly $11 billion of cash which the Number-Three domestic carmaker has on its balance sheet - a potentially welcome tonic for GM, which is burning through its own cash cushion faster than one of its humongous Hummer SUVs burns through the contents of its gas tank, spending that cash stash down by around $1 billion per month.

Cerberus is also the 51% owner of GMAC; one possible scenario reportedly being discussed calls for GM to take over Chrysler's auto operations while Cerberus would retain its Chrysler Financial auto-loan arm and combine it with GMAC.

While GM was cruising higher, so was its other domestic arch-rival, Ford; a trader saw the Dearborn, Mich.-based Number-Two domestic car producer's 7.45% bonds due 2031 up 6 points on the day to 35 bid, 37 offered, and a second quoted them at 35 bid, up 5½ points.

However, another saw the Ford benchmarks more restrained, up just 2 points to 31 bid, 33 offered.

MGM Mirage front end gets new-deal boost

Outside of the automotive realm, one of the big stories in Junkbondland on Wednesday was MGM Mirage's plans for its new benchmark-sized issue of secured bonds.

A trader said that MGM's 6% notes coming due next Oct. 1 was probably the most active issue in the company's capital structure, with 38 million changing hands. He saw the bonds going out at a round-lot bid of 88, up from 84.5 offered on Tuesday.

MGM's 6½% notes coming due next July 31 did even better, pushing up to 90.5 bid from 86 previously, although volume was a more restrained $12 million.

He also saw $35 million of its 8½% notes due 2010 trading at 70.25, up ¾ point.

"The shorter [MGM] names moved up on the assumption that by bringing this new issue, the company will put itself in a better position to pay off those bonds when they come due."

Another trader agreed, noting that "we saw the front end really rally on the news of the five-year asset-backed deal coming, but saw the long end actually sell off - obviously the [new] secured paper is ahead of them," i.e. the existing bonds in the capital structure.

He noted that the shorter paper had also rallied by about 3 or 4 points on Tuesday as well, "so the '09 paper has really outperformed the rest of the MGM curve.

As for the longer issues, a trader saw its 7 5/8% notes due 2017 "very active," with $1 million traded to finish at 60.375, down from 60.75 on Tuesday, although its 7½% notes due 2016 were up ½ point to 61 bid, on $18 million traded.

The news that the big gaming company is doing a big new issue of bonds overshadowed its report of third-quarter results. Net income for the period plunged by two-thirds to $61.3 million, or 22 cents a share, from $183.9 million, or 62 cents a shares, in the year-ago quarter. Net revenue was down 5.9% to $1.79 billion.

Trump jumps - but can't hold gain

Trump Entertainment Resorts' 8½% notes due 2015 were also pretty actively traded, with an estimated $20 million changing hands. A trader saw those bonds hit a high of 29 bid, but then fall back to end at 26, although that was still up from 25.25 on Tuesday.

However, a second trader, while seeing the bonds at 25 bid, 27 offered, said that they were up 3 points on the day.

Another trader said that once the junk market came back to life following the 2:15 pm ET Fed rate cut announcement, Trump "gave almost all of their [morning gains] back." He saw the bonds going out around the 25.5 bid, 26.5 offered level.

He said the catalyst for all of that trading was the announcement that Trump and Coastal Development LLC, the would-be buyer of its Marina hotel and casino in Atlantic City, had amended the terms of the deal. Coastal, run by New York developer Richard Fields, will now pay only $270 million for the property instead of the originally agreed upon $316 million - a renegotiation of terms made necessary by the economic downturn, which has hit the casino industry particularly hard.

In return for the lower price, Fields will give Trump more up-front cash - $17 million versus $15 million, and Trump will have immediate access to $15 million of that deposit rather than being forced to keep it in escrow.

Trump also has the right to terminate the deal if the transaction does not close by this coming May 28, unless it is extended for a maximum of 60 days to obtain regulatory approval, provided all other closing conditions have been met.

Activity in fallen financials

Formerly investment-grade issues of failed financial companies were also among the active movers, particularly Lehman Brothers, whose 5 5/8% notes due 2013 were seen up nearly 2 points at 13 bid, and Washington Mutual, whose 4% senior holding company notes coming due this January were 1.5 points better at 58.5 bid.

At another desk, WaMu's 5¼% senior holdco notes due 2017 were seen up nearly 4 points to 61 bid.

Community Health again lags market

A trader said that apart from Trump, MGM Mirage and the autos, "there have been just tons of earnings, and it seems like every time you turn around, another company is reporting."

One of those out with numbers late in the session was Community Health Systems Inc. The Franklin, Tenn.-based hospital operator said that its third-quarter net profit almost quadrupled to $50.4 million, or 53 cents per share, versus its year-earlier gain of $10.5 million, or 11 cents per share. However, the results fell slightly short of the roughly 55 cents per share Wall Street had been looking for. Revenue for the quarter revenue rose by 23% from a year ago, to $2.77 billion, a little above the forecasts.

Community Health attributed the gains to a 23% rise in admissions, mostly due to a 2007 expansion of its hospital network.

Before the numbers came out late in the session, a trader noted that the company's 8 7/8% notes due 2015, usually a fairly reliable reflector of market trends, were trading at 80 bid, down from 80.375 on Tuesday - the second straight session in which those bonds had been off, "sort of contrarian to the overall market tone."

Another trader opined that "maybe people were waiting to see what was in the earnings report. People may have placed their bets [on which way the bonds would go] and were waiting to see what happens."

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