GM, Ford gain on Toyota troubles; Rite Aid rises despite rival's stumble; Cinram loan steadies

By Paul Deckelman and Sara Rosenberg

New York, Feb. 3 - After years of seeing Toyota grab an ever-increasing slice of the car-market pie away from the once invincible General Motors Corp. and even watching the beleaguered GM ignominiously slide into bankruptcy last year, while its Japanese rival cruised along relatively untouched by the auto industry downturn, GM bondholders could be forgiven if they indulged in a little schadenfreude -- getting a kick out of someone else's misfortunes -- with the shoe finally on the other foot and Toyota in the hot seat over its cars' widely publicized stuck-accelerator pedal problems. GM's bonds were up solidly Wednesday, with traders attributing the gains mostly to Toyota's mounting troubles, which at one point included a call by the U.S. transportation secretary for owners of millions of recalled Toyota vehicles to leave their cars parked, other than to drive them to their dealers for repairs.

Ford Motor Co.'s bonds were also seen having benefitted from the problems swirling around its biggest non-U.S. competitor.

Traders saw Cooper Standard Automotive Inc.'s bonds - which jumped on Tuesday on financing commitment news and the filing of its bankruptcy reorganization plan -- holding their gains but not adding to them, on greatly reduced volume, the surge apparently over.

Elsewhere, Rite Aid Corp.'s bonds were better by a point or so pretty much across the board, even though the company had no news out on its own and larger competitor Walgreen Co. reported weak January sales trends, echoing the monthly sales decline with Rite Aid itself reported last week.

Smurfit Stone Container Corp.'s bonds fell in sympathy after sector peer International Paper Co. reported mixed and generally lackluster fourth-quarter results and predicted a tough first quarter.

Bank-debt traders meanwhile saw the two-session gyrations of Cinram International Income Fund's term loan D come to a close, as the Toronto-based provider of pre-recorded multimedia products' paper finished unchanged to higher.

GM takes an upside ride

A trader said that General Motors Corp.'s bonds "continued to be fairly strong," seeing its benchmark 8 3/8% issue due 2033 going out at 29½ bid, 30 offered, which he said was up another ½ to ¾ point on the day.

Another trader said that GM was "a little active in the morning," seeing the bonds up ¼ point before lunch to around 291/2, with the paper then rising further to 29 7/8 bid by the end of the day.

"Since Toyota's won't stop," he said, "GM may be able to take advantage."

"I would think that the rally over the past couple of days in GM has probably been fueled by all of the negative news surrounding Toyota," the first trader agreed.

The top Japanese carmaker - which has displaced GM from its long-held position as the world's top carmaker and has also gained a sizable share in the U.S. car market at the expense of domestic producers like GM, Ford and Chrysler - has been plagued by the bad publicity surrounding its cars' accelerator problems since the fall. In October, it recalled about 5 million vehicles over problems with floor mats trapping gas pedals, and on Jan. 21, announced a further recall of some 2.3 million vehicles amid concerns that gas pedals could become stuck or slow to return to the idle position. That helped to send Toyota reeling to a 16% year-over-year sales loss in a month when most carmakers, foreign or domestic showed hefty gains. GM and Ford were among those jumping in to pick up some of the slack at their wounded rival's expense, with GM January sales up 14% from a year earlier and Ford's 25% higher.

U.S. transportation secretary Ray LaHood added further fuel to the fire on Wednesday, when he suggested that owner's of recalled Toyota vehicles leave their cars in the driveway, unless they are driving them to a dealer for repairs. LaHood later partially backtracked on his comment, saying he meant that motorists in doubt should go to their dealers, and the cars would be fixed. But LaHood also indicated that his department would expand its investigation of the situation to look into reports of braking problems with Toyota's most lucrative model, the environmentally friendly Prius hybrid, which up until now has not been a part of the recall. Japan's transport ministry is also looking into reports of Prius braking problems.

The trader said that Toyota's well-publicized woes "maybe wind up having a positive bias toward American cars, which GM would benefit from."

He said that the Detroit auto giant's bonds were being helped by "a combination of them announcing [improved] sales, as well as what's going on with Toyota."

However, he added that the big question is "whether or not it sticks - whether they continue to have good sales numbers month to month," and noted that "a lot of the sale rise is in fleet [sales], not necessarily retail." Fleet sales to car-rental companies, police departments and other government agencies and taxicab and car-service operators and other big buyers, while boosting overall numbers, are considered generally less profitable for carmakers than retail sales to individual motorists because they give quantity discounts to the fleet buyers, cutting their own profit margins on each car in such transactions.

A trader said that GM domestic arch-rival Ford's 7.45% bonds due 2031 were trading around an 89 to 90 level, up about a point from the beginning of the week, although he said that the Ford paper is "not as up on a percentage basis nearly as much as GM," whose bonds had been seen languishing in the mid-20s a few days ago and thus have risen nearly 20% to 25% in that time. However, "we are seeing some positive upward moves on both of them."

He also saw Ford Motor Credit Co.'s paper "a little better as well." The latter's recent offering of 8 1/8% notes due 2020 were seen hanging in around the 101 level, though on limited volume.

Another trader saw the Ford 7.45s up a handsome 2 points on the session to 89 bid, 91 offered.

Cooper-Standard surge flames out

A trader saw Cooper-Standard Automotive's 8 3/8% senior notes due 2014 unchanged at around the same 41-43 area to which those bonds had jumped on Tuesday on heavy volume after the bankrupt Novi, Mich.-based auto components maker filed its reorganization plan giving its bondholders a big chunk of the restructured company with the Delaware bankruptcy court overseeing its restructuring, and announced that it had received commitments for a $245 million backstopped rights offering as part of its financing.

Unlike Tuesday, when over $25 million of the bonds traded and they rose around 10 points on the session into the low 40s, Wednesday saw just "light volume, not much action. Nothing like [Tuesday]."

Another trader said that Wednesday's dealings in the name "were pretty quiet today, really unchanged for the most part."

Smurfit-Stone slips as IP underwhelms

A trader said that Smurfit-Stone Container's bonds "were down a bunch" on Wednesday, hurt by lackluster quarterly results and bearish guidance from sector peer International Paper. However, he said that the bankrupt Chicago-based packaging company's issues later rebounded a little from their lows toward the end of the day.

He saw bonds such as its 8¼% notes due 2012 fall as low as a 78-79 context, versus Tuesday's finish around 82½ bid, 83 offered - although by the end of the day "it's fair to say that they rebounded a point or so" to end around 80 bid, 81 offered.

He said he had heard that International Paper was out with numbers, "and they weren't very good, and that was the weight that was on Stone Container, because they're in similar business lines."

Smurfit-Stone's 8 3/8% notes due 2012 went home at 80 bid, down nearly 3 points on the session.

Another trader who also saw the Stone Container bonds off by "a couple of points" to around 80 likewise attributed the heaviness to International Paper's news.

The latter company reported that in the fourth quarter, it lost $101 million, or 24 cents a share, versus its year-earlier red ink of $1.79 billion, or $4.25 a share. While the latest quarter thus represented a considerable bottom-line improvement, it should be noted that the 2008 fourth-quarter loss was largely due to a $1.8 billion write-off, mostly related to the Memphis-based company's rapidly dwindling U.S. printing-papers business. Parsing the numbers, its largest operating unit - industrial packaging - posted a $391 million operating loss. The company blamed the downturn on maintenance outages and higher wood costs in the southern United States.

Looking ahead, International Paper executives expressed optimism that things would look up in 2010, but for the moment, its chairman and chief executive officer John Faraci warned that January and February "are going to be tough."

Rite Aid rises despite industry sag

A surprise gainer was Rite Aid, whose bonds were seen up around a point across the board, even though no fresh positive news was seen out on the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator -- and even though the industry's top player, Walgreen Co., reported sales declines in January, same-store sales at outlets open at least a year, a key retailing metric, down 1.1% year-over-year. Those Walgreen numbers echoed similarly dismal Rite Aid January results released recently - same-stores were down 2.1%, while overall sales fell 3.3%.

Despite that negative drugstore industry background noise, a market saw Rite Aid's 7½% notes due 2017 up nearly a whole point at 91 bid, on brisk volume. Rite Aid's 8 5/8% notes due 2015 gained a point to end at 83, while its 9 3/8% notes due 2015 gained more than 2 points, ending at 85.

Blockbuster busy as rival goes belly-up

A trader saw Blockbuster Inc.'s bonds largely unchanged, quoting the Dallas-based movie-rental company's 9% senior subordinated notes due 2012 in a 231/2-25 context, with "a fair amount of activity," while its 11¾% senior secured notes due 2014 stayed in a 71-72 range.

With an estimated more than $12 million of the 9s having changed hands by mid-afternoon, most of the trades within the range took place at 24.

However, at another desk, a trader saw the company's paper "a little bit better" on the day, saying the 24 level represented improvement from a 221/2-23 level on Tuesday.

He said that news that Blockbuster's main rival - at least among the traditional brick-and-mortar movie-rental store operators - Movie Gallery, Inc., had filed for bankruptcy for the second time in three years and plans to close more than 800 of its over 2,400 Hollywood Video stores, came as no real surprise to anyone who has been following the industry. "That stuff [i.e. the brick-and-mortar stores part of the business] has been suffering for such a long time," he said. "That could have a negative impact on Blockbuster as well - but you're also taking away some of the competition, as Hollywood closes stores, so maybe they benefit."

But the real challenge to Blockbuster, he said, is not its already smaller and weakened rival, but the upstarts who have come in and grabbed much of the movie-rental business through non-traditional distribution channels, like Netflix Inc.'s online ordering and mail delivery of DVDs or Coinstar Inc.'s ubiquitous Redbox rental kiosks. While Blockbuster has tried to re-invent itself and get into these areas, industry observers say it faces an uphill battle against the more entrenched competitors.

Cinram settles in

In the bank-debt market, traders said that Cinram International Income Fund's term loan D was unchanged to higher on Wednesday, bringing its two days of bouncing around to a close.

The term loan D was quoted by one trader at 75 bid, 77 offered, flat on the day, and by a second trader at 76½ bid, 77½ offered, up from 76 bid, 76½ offered.

On Monday, the loan had plummeted all the way to the 67 bid, 72 offered context from the 86½ bid, 88½ offered area after the company revealed that service agreements with Warner Home Video Inc. will terminate on July 31.

Then, on Tuesday, after investors had some time to digest the news, the term loan B recouped a chunk of its losses, moving into the mid-70s area, and then extending that movement on Wednesday.

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