GM backs off gains, Ford firms on sales data; Smurfit-Stone rises again after monthly numbers

By Paul Deckelman and Sara Rosenberg

New York, June 2 - The beleaguered automobile sector continued to be the talk of the distressed-debt market on Tuesday, traders said, a day after long-time industry icon General Motors Corp. filed for Chapter 11 status and set about restructuring itself. GM's bonds - which had jumped anywhere from 4 to 6 points on Monday in the immediate aftermath of the filing, when they started trading flat, or without their accrued interest, were seen having backed off of their Monday peak levels.

Meanwhile, Ford Motor Co.'s bonds, as well as its term loan, were higher following the release of its May sales numbers - numbers which saw the Number-Two domestic auto producer actually gaining market share from rivals like the embattled GM and fellow bankrupt Chrysler LLC, and especially from such overseas rivals with North American operations as Toyota and Honda

Lear Corp.'s bank debt - which had plowed higher on Monday on the news that the Southfield, Mich.-based automotive components manufacturer had decided to skip the scheduled June 1 coupon interest payment on several series of its bonds -- gave up some of those gains on Tuesday.

Outside of the autosphere, Smurfit-Stone Container Corp.'s bonds, on a tear over the last two sessions, continued upward for a third straight day, apparently helped by investor expectations of positive April operating results from the bankrupt packaging manufacturer.

GM spins its wheels

A trader saw between $40 million and $50 million of the GM benchmark 8 3/8% bonds due 2033 "trading a little bit softer, down around 13," after having shot up to levels above 14 on Monday when the bonds began trading flat, or without their accrued interest, following GM's bankruptcy filing.

Besides the switchover to flat trading, which incorporates the missing interest into the bond's price, market participants also attributed Monday's 4 to 5 point across-the-board rise in GM's bonds to a sense of relief that the long-awaited other shoe of bankruptcy had finally been dropped, ending the suspense and uncertainty about whether GM would be able to dodge the bankruptcy bullet one more time.

Another trader saw the GM long bonds - and the rest of the company's capital structure - having come off their peak levels of Monday to end in a 13 to 13½ context, versus "14 and change" on Monday. He saw "a lot of volume" in GM Tuesday.

Yet another trader saw the GM bonds even lower, at 12 ½ for the 8 3/8s , down 1 ½ points on the day.

GM, which released may sales numbers on Tuesday, saw its sales fall 28.7% in the month from a year ago - although that drop was less than feared, and its sales totals, boosted by customer incentives, made May its best sales month of this year.

Ford firms on solid sales data

But the really big winner from the sales numbers was Ford, whose bonds and term loan traded up after the carmaker's May sales data showed it gaining market share on its domestic and overseas rivals.

A trader said the 7.45% benchmark bonds due 2031 were 3 points better on the day at 60 bid, 62 offered, while another had the bonds at even higher levels, "up nicely" at 62 bid, 64 offered, which he called up 3 points.

The Dearborn, Mich.-based automaker's term loan was meanwhile quoted at 72¾ bid, 73¾ offered, up from 71¾ bid, 72¾ offered, a bank debt trader said.

For the month of May, total Ford sales were 161,531, down 24.2% from 213,238 in the same period last year - but less than the roughly 29% drop analysts had been expecting.

Ford, Lincoln and Mercury sales totaled 155,954, up 20% versus April and the highest sales for any month since July 2008. Compared to May 2008, Ford, Lincoln and Mercury sales were down 24.3% from 206,000.

Analysts said that Ford, which had been steadily losing market share for months on end, actually gained market share on its rivals, giving the company its biggest market share since 2006. Ford now controls 15.1% of the domestic marketplace, and some analysts predict that the relatively financially stable Ford could even leapfrog past the staggering General Motors in sales by the end of the year.

Lear loses a little

Also in the automotive realm, Lear Corp.'s term loan dropped back to where it basically was prior to the emergence of news that the company is skipping interest payments on its notes that were recently due, according to a trader.

The term loan was quoted at 65 bid, 67 offered, compared to around 70 bid, 72 offered at the close on Monday. Last Friday, the loan was around 65½ bid, 67 offered.

On Monday, Lear was supposed to make approximately $38 million of semi-annual interest payments on its 8.5% senior notes due 2013 and 8.75% senior notes due 2016, but instead, decided to utilize a 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.

Lear's senior secured debt rating was downgraded on Tuesday by Standard & Poor's to CC from B and its corporate rating was lowered to D from CCC+ as a result of the missed interest payments.

Standard & Poor's explained that it is not confident that Lear will make the payments within the grace period and said that, among other outcomes, the company might pursue a distressed exchange or file for bankruptcy under Chapter 11.

Smurfit-Stone upside continues

Elsewhere, a trader saw "a couple of million" of Smurfit-Stone Container Corp.'s bonds trading higher, given an apparent boost by positive April operating numbers released by the Chicago-based maker of corrugated cardboard and other packaging materials.

It was the third consecutive session that the company's bonds have been solidly higher, with no other news seen out there that might account for that run-up.

The trader saw its 8¼% notes due 2012 at 37¾ bid, 38½ offered - up from 37 bid early in the session and up further from Monday's closing levels around 361/2.

He said that the 8% notes due 2017 were "a little bit more active" in hitting a top price of 38 3/8, well up from 35 1/8 late Monday. He estimated that at least $15 million of the latter bonds had traded, "and maybe more than that."

At another desk, a trader called the 81/4s "up a couple of points at 38 bid, 39 offered, but said that "all of its bonds were like that." He saw the 8s a little above 38, with "a lot of volume" in the name.

A market source noted that Smurfit-Stone had released its April monthly operating report, which is filed with the bankruptcy court, and he said that it showed an increasing cash build-up, as well as containing the confirmation that the company had received certain tax credits.

Hovnanian higher on numbers

A trader said Hovnanian Enterprises Inc.'s bonds were higher after the Red Bank, N.J.-based homebuilder reported a narrower fiscal second-quarter loss and a big debt buy-back. He said its 6¼% notes were being quoted up "4 or 5 points" around the 49 bid, 52 offered level - "no transactions, but higher quotes, on the numbers and the large debt buyback."

Another market source saw its 6 3/8% notes due 2014 at 48 bid, up 2 points.

Hovnanian said its fiscal second-quarter loss narrowed to $118.6 million, or $1.50 a share, from $340.7 million, or $5.29 a share, in the year-ago period. Revenue fell to $398 million from $776.4 million last year, as the builder benefited from efforts to cut debt and had fewer write-offs and impairments.

It further said that it had repurchased $525 million of unsecured senior and senior subordinated notes in the quarter, which ended April 30, letting it record a $311.3 million gain on extinguishment of debt for the second quarter.

The company said it bought back $71.1 million principal amount of its 6% senior subordinated notes due January 2010 at an average price of 92.2 and purchased the rest of the notes at 31.5.

Rite Aid a little softer

A trader saw Rite Aid Corp.'s bonds soften a little from the peak levels that the Camp Hill, Pa.-based drugstore operator's paper had hit during Monday's session - but he dismissed the easing as "not a big deal."

He pegged the 6 3/8% notes due 2013 around 65 bid, while its 10 3/8% notes due 2016, which were "active," were down ½ or ¾ point at 89½ bid, "but so what?" he asserted.

Rite Aid's bonds have recently firmed on the company's refinancing plans.

Trump trouble has little bond impact

A trader saw little or no impact on Trump Entertainment Resorts Inc.'s 8½% notes due 2015 from the news that the deal to sell the company's Trump Marina casino and hotel in Atlantic City, N.J. to a development company for $270 million seems to have run aground.

He said he "did not see diddly in Trump today - not a thing." Checking levels, he said perhaps $1 million of the bonds traded at 12¼ bid, 12½ offered, but "I never saw anything and never heard much talk about it."

Trump - which filed for Chapter 11 earlier this year - had arranged last year to sell the Marina, the smallest of its three Atlantic City casinos, to Coastal Marina LLC for $316 million, although that price was later negotiated downward to $270 million. Coastal had planned to re-brand the resort as a "Margaritaville" -themed island paradise inspired by the popular Jimmy Buffett 1970s hit song of the same name - but the deal never closed as scheduled at the end of May.

And while the mellow tropical troubadour Buffett - who is working with Coastal and other gaming operators in opening a chain of "Margaritaville" resorts - famously sang that "some people claim that there's a woman to blame" for the bad fortune that caused the singer to be "wasting away" his life, Trump and Coastal are each blaming the other for the Marina deal's apparent demise. Coastal said Trump informed it on Monday it had killed the deal - but Trump claimed that it acted only after Coastal had allegedly wrongly accused it of defaulting on the agreement by steering customers elsewhere.

Clear Channel moves higher

Back in the bank debt market, Clear Channel Communications Inc.'s term loan B posted a pretty significant gain on Tuesday, as an intercompany note it has made to a subsidiary is coming due and that subsidiary is looking into ways to pay off the note, according to a trader.

The term loan B was at 66 bid, 69 offered, up from 61¼ bid, 63¼ offered, the trader remarked.

On Tuesday morning, the San Antonio, Tex.-based outdoor advertising company said that it is actively pursuing alternatives to address the maturity of the intercompany note payable to its corporate parent, broadcasting and entertainment operator Clear Channel Communications, also based in San Antonio.

These alternatives may include an offering of new senior or senior subordinated notes for cash or an exchange of new senior or subordinated notes for outstanding debt.

Timing and structure of any transaction will depend on market conditions, the company said in a news release.

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