GM bonds up after Chapter 11, loan steady; Lear loan better, bonds idle on missed coupon

By Paul Deckelman and Sara Rosenberg

New York, June 1 - As General Motors Corp. officially slid into bankruptcy on Monday - an ignominious humiliation for the company that was once the icon of American industrial and financial might - the carmaker's bonds began trading flat, which helped to push that paper up by several points. Meanwhile, GM's bank debt was seen mostly unchanged to a little stronger on the news, which had been widely expected.

Also in the automotive realm, components supplier Lear Corp.'s not-unexpected announcement that it would skip the scheduled June 1 interest payment on two series of its junk bonds produced little movement in those notes, even as its term loan firmed, since the decision to skip the bond payment keeps Lear in compliance with its recently amended loan covenants.

Apart from the autosphere, Rite Aid Corp.'s bonds were seen higher in active dealings as the market continued to digest Friday's news that the Camp Hill, Pa.-based drugstore chain operator had priced an upsized term loan.

Fellow retailer Bon-Ton Department Stores' Inc.'s bonds were up, though on no fresh news about the York, Pa.-based department store operator.

There was likewise no new news out on Smurfit-Stone Container Corp., whose bonds were points better.

Also in that packaging sector, Caraustar Industries Inc.'s not-unexpected bankruptcy filing had little impact on the company's bonds.

GM jumps after Chapter 11

A trader said that the big news Monday in the distressed and junk markets, "obviously," was General Motors long-expected Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of New York.

"It's been all about GM today," another trader said. "All of my alerts have been GM, and if you look at the volume leaders on Trace, the top three are GM, and probably five or six of the top 10."

A trader saw GM's benchmark 8 3/8% bonds due 2033 as the single most actively traded junk issue of the day, seeing those bonds up 4 points on the session from Friday's finish at 14¼ bid, with $61 million having changed hands.

He saw heavy trading in several other of the Detroit-based carmaker's issues, including its 8¼% bonds due 2023, going out at 14¼ bid versus 9¾ on Friday, on turnover of $38 million, and at the shorter end of the curve, its 7.20% notes due 2011, which rose to 13¾ bid from 9¾ on Friday, with $36 million traded. He also saw GM's 7.70% notes due 2017 firm to 13 5/8 bid, up from 10¾ on Friday, with $16 million traded.

A market source elsewhere saw GM's 7 1/8% notes due 2013 gain more than 5 points on the session to finish at 141/2, while its 8.10% bonds due 2024 did even better, up more than 6 points on the day to go out just under 14 bid. Its 6¾% bonds due 2028 gained more than 4 points to finish at 12.

Another trader, who saw "all the activity in the world" going on in the GM paper, pointed out that with the bankruptcy filing now official, the company's bonds, which had traded with their accrued interest as recently as Friday, are now trading flat, or without the accrued, so "yeah, it's up points, but when it trades flat [the interest] gets added into the price, so that's part of the move up."

GM's New York Stock Exchange-traded shares were meantime unchanged, trading at 75 cents, on volume of 341 million shares, nearly seven times the norm. It was announced on Monday that GM will be dropped from the Dow Jones Industrial Average, where it had been a fixture since Aug. 31, 1925.

GM's bank debt was unchanged to a little stronger Monday on the Chapter 11 news; traders in that market told Prospect News that the move had been expected for a while now.

The term loan was quoted at by one trader at 94½ bid, 95½ offered, basically unchanged on the day, and by a second trader at 96½ bid, 97½ offered, up from 96 bid, 96¾ offered.

In addition, General Motors' revolving credit facility was quoted by one trader at 92½ bid, 93½ offered, pretty much flat on the day, and by a second trader at 95 bid, 96 offered, up from 94 bid, 95 offered.

According to the first trader, the company has to pay off the bank debt within 55 days and lenders will get paid down at par.

He went on to explain that the term loan and the revolver are not quoted closer to par because for the 55 days, they're not accruing interest and "people are afraid that something could always happen."

Under the bankruptcy plan, General Motors will sell substantially all of its global assets to a separate and independent company called "New General Motors," and the new company will execute the key elements of the April 27 viability plan, along with additional initiatives.

The new company is expected to be built from only General Motors' best brands and operations, and it will be supported by a stronger balance sheet due to a significantly lower debt burden and operating cost structure than before. GM is expected to keep its iconic Chevrolet and Cadillac nameplates, along with Buick and GMC, and will meanwhile seek to dispose of its Hummer, Saab and Saturn lines, by selling them if possible. Its Pontiac brand -- which has been a GM mainstay since 1926 and the spearhead of its dominance during the "muscle-car" era of the '60s, but which has fallen on hard times in recent years -- will be wound down; after 2010, it will follow in the tiretracks of another venerable GM nameplate, Oldsmobile, now relegated to the history books.

The company will incorporate the terms of General Motors' recent agreements with the United Auto Workers and Canadian Auto Workers unions and will be led by General Motors' current management team.

The capital structure of New General Motors is expected to be much improved from that of the current General Motors.

Upon closing of the sale, the new company will have approximately $17 billion in total consolidated debt, including $6.7 billion of debt owed to the U.S. Treasury, $1.3 billion of debt owed to the Canadian and Ontario governments, $2.5 billion of notes issued to the new Voluntary Employee Beneficiary Association, and approximately $6.8 billion of other, primarily international debt, but excluding Europe.

By comparison, on March 31, General Motors reported consolidated debt of $54.4 billion, along with additional liabilities, including an estimated $20 billion obligation to the UAW VEBA.

The new capital structure will also include $9 billion of perpetual preferred stock, common equity divided into 60.8% owned by the U.S. Treasury, 11.7% owned by the Canadian and Ontario governments, 17.5% owned by the VEBA, and 10% for unsecured bondholders and other unsecured creditors, and warrants.

As part of the bankruptcy, General Motors will get a debtor-in-possession financing facility of approximately $33 billion.

Pending approvals, "New General Motors" is expected to launch in about 60 to 90 days. The plan already has the support of the U.S. Treasury, the UAW and a substantial portion of unsecured bondholders.

Lear loan leaps

Also in the automotive world, Lear Corp.'s term loan gained some ground over the course of the trading session following news that the Southfield, Mich.-based supplier of automotive seating systems, electrical distribution systems and electronic products is skipping interest payments on its notes that were due on Monday.

The term loan was quoted by one trader at 70 bid, 71 offered, up from 65½ bid, 66½ offered on Friday, by a second trader at 70 bid, 72 offered, up from 65½ bid, 67 offered, and by a third trader at 71 bid, 73 offered, up more than 1½ points on the day.

The third trader explained that the bank debt was higher on the news because now people think the company may file for bankruptcy and "the collateral package is good."

On Monday, Lear was supposed to make approximately $38 million of semi-annual interest payments with respect to its 8.5% senior notes due in 2013 and 8.75% senior notes due in 2016, but instead, decided to invoke the standard 30-day grace period.

The company said that during the grace period, it will continue discussions regarding a capital restructuring with its lenders and others.

By not making the interest payments, the company was able to keep in place a loan amendment of financial covenants and waiver of existing defaults that was entered into on May 13.

Over on the bond side of the fence, a trader said that it had been "pretty much expected" that Lear would skip the coupon payments on those notes, and saw the bonds essentially unchanged.

Another said "maybe the bank debt was active - but not the bonds." He too said that he "didn't see a lot of change from last week," quoting the 81/2s at 28½ bid, "on not much volume," while the 83/4s hovered around 27, and he was "not seeing a lot of activity in them at all."

However, at another shop, the Lear 53/4s were quoted 3 points higher on the session at 36 - although another market source saw no sizable trades in the paper Monday, calling them unchanged from their previous round-lot finish at the end of last week at 341/2.

Among other names in the autosphere, a trader saw American Axle & Manufacturing Inc.'s 7 7/8% notes due 2013 unmoved by the bankruptcy of the Detroit-based vehicle axle-maker's key customer, GM . He saw them trading at 301/2, the same as last week, "on only one or two trades."

Chrysler loan gains ground

Chrysler Financial Services LLC's first-lien term loan was seen a little bit higher in the secondary market Monday, with a number of things possibly contributing to the rise, according to a trader.

The trader said that the debt could have been pushed up by the overall cash market being stronger by at least ½ point, or it could have risen with General Motors, or it could have been because parent Chrysler LLC - Chrysler Financial provides loans to wholesale and retail purchasers of Chrysler's vehicles -- is closer to exiting from bankruptcy.

News emerged before the session opened that Auburn Hills, Mich.-based Chrysler, the Number-Three domestic automaker, received approval from the U.S. Bankruptcy Court to sell most of its assets to a new entity involving the U.S. and Canadian governments, Fiat SpA and the United Auto Workers.

By the end of the day, Chrysler Financial's first-lien term loan was quoted at 89½ bid, 90½ offered, up from 89¼ bid, 90¼ offered on Friday, the trader said.

Retailers' rise continues

Apart from the automotive names, a trader said that Rite Aid's bonds were trading "a bit higher" in the wake of Friday's news of an expanded term loan, quoting its 9 3/8% notes due 2015 at 68 bid, 68 ½ offered, although he added that he didn't know "if it means that much."

But he allowed that "there was a lot of activity" in the name, with its 10 3/8% notes due 2016 trading around 90, "on a good amount."

He saw Rite Aid's 7½% notes due 2017 "up a little, less than a point," around 79 bid, 80, "where the activity was today, and it seemed like there was good volume there as well."

Another trader called most of the structure" up ½ to ¾ point, with the 8½% notes due 2015 better by ½ point at 68 bid, 69 offered. He'd seen the 7½% notes up by as much as 1½ points at midday, but said that by day's end, they had eased from their peak level to end up ¾ point on the day at 79 bid, 80 offered.

A trader said that Bon-Ton Department Stores' 10¼% notes due 2014 were around a 48-49 context, although he said that the bonds had already "moved up on Friday" and were perhaps ½ point to a full point better on Monday.

Another trader saw the bonds up a point on Monday, observing that they "have been ripping these last few weeks," having risen to current levels from levels around 35-36 as recently as May 15.

Retailers in general, he said, "have been doing very well recently across the board. Their bonds have been well-received - and noted that the Rite Aid bonds had gained about 8 points during that same time frame.

Smurfit-Stone stronger; Caraustar calm

Among packaging makers, a trader saw Smurfit-Stone's 8¼% notes move "up a couple of points and then keep going at the end of the day," finally coming to rest at 36 bid - a 5 point advance, although he saw no fresh news out on the Chicago-based company, which filed for Chapter 11 protection in late January.

He saw its 7 3/8% notes due 2014, which "usually trade higher than the others," continue to do so on Monday, rising to 40 bid.

He meantime "saw the news, but did not see many quotes" in Caraustar Industries' bonds in the wake of the Atlanta-based packaging company's Chapter 11 filing. He saw its 7 3/8% notes that were to have come due on Monday at 48 bid, 50 offered, but with "no activity, just one quote."

Caraustar said that it had reached agreement with holders of approximately 83% of the 7 3/8s and 91% of its 7 ¼% notes due 2010 on the terms of a cooperative financial restructuring that would reduce the company's debt by some $135 million. It said they had agreed to complete the restructuring through a pre-negotiated plan of reorganization that will be submitted to the U.S. Bankruptcy Court for the Northern District of Georgia, in Atlanta, where the company filed for protection.

Under the plan, holders of outstanding Caraustar common stock will receive their pro-rata share of $2.9 million, or about 10 cents per share, subject to certain conditions contained in the plan, which also contemplates the exchange of the company's existing 7 3/8% and 7¼% notes for an aggregate of $85 million in new senior secured notes and 100% of the common stock of the reorganized company.

The reorganized company is expected to emerge as a private entity with Wayzata Investment Partners LLC becoming the company's controlling shareholder.

Broader market seen firmer

Elsewhere, a trader saw Fairpoint Communications Inc.'s 13 1/8% notes due 2018 "both active and higher," although he saw no fresh news out about the Charlotte, N.C.-based provider of communication services to rural and small-market urban communities.

He saw the bonds at 37¼ bid, up from 34¾ on Friday, on volume of $13 million.

Fairpoint's NYSE-traded shares meantime moved up by 8 cents, or 7.92%, to $1.09 on volume of 2 million shares, about 2½ times the usual turnover.

The trader also saw AbitibiBowater Inc.'s 7.95% notes due 2011 move up to a round-lot level of 22 bid on Monday, versus Friday's 193/4, with $8 million traded. The bonds were originally issued by Bowater Canada Finance Corp. before the ill-fated merger of its parent, Bowater Inc., with the company then known as Abitibi Consolidated Inc. to form AbitibiBowater. There was no fresh news seen out on the Montreal-based paper maker, which filed for bankruptcy protection in the United States and Canada on April 17.

Another market source saw Bowater's 6½% notes due 2013 gain 2 points to close at 18 bid.

A trader said that R.H. Donnelley Corp.'s bonds were "quoted very actively today," down around a 6-7 context, following the Cary, N.C.-based telephone directory publisher's Chapter 11 filing on Friday, but he added that he was "not seeing a lot" of any actual trading.

A trader said General Growth Properties Inc.'s bonds were "up 1½ to 2 points across the capital structure," although he did not see any fresh news out about the Chicago-based shopping center owner, which filed for Chapter 11 on April 16.

He saw its Rouse Cos. Inc. subsidiary's 8% notes that were to have come due on April 30 at 65½ bid, 66½ offered, with the company's other paper "about a ½ point behind."

At another desk, Rouse's 5 3/8% notes due 2013 were quoted at 66½ bid, up more than 3 points on the session.

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