Auto sector stays under pressure as markets tank; casinos not so recession proof; broad market slides

By Stephanie N. Rotondo

Portland, Ore., Oct. 6 - The financial market entered into something akin to freefall Monday, as investors around the world showed just how squeamish they really were.

The distressed bond market "took its cue from the equities," a trader said, with the Dow Jones Industrial Average losing 800 points - only to come back to just 370 points weaker.

"The market is easily down a couple to 5 points," the trader said. He added that the declines were "driven by technicals, redemptions and bid lists."

"Things are not trading on fundamentals at this point," he said.

As the global economy spiraled downward, jumpy investors put more pressure on two already struggling sectors: autos and casinos.

In the autosphere, Ford Motor Co.'s debt fell, pushed further lower as its credit rating was cut again. General Motors Corp.'s bonds also slipped, though not as much as Ford. Delphi Corp.'s paper was also weaker, despite top management's claim that it can secure exit financing even amid the current credit turmoil.

The gaming sector has typically been seen as "recession proof," but that belief has been thwarted - if current trading levels are any indication. Everything from Harrah's Entertainment LLC to Trump Entertainment Resorts Inc. fell during the session, even as Atlantic City was considering putting off its smoking ban to avoid further revenue losses.

Overall, traders painted a dismal view of the market. Market players seemed little comforted by the government's $700 billion bailout plan, passed Friday, or by the Federal Reserve's proposal to increase lending to banks to $900 billion. One trader pointed to Bank of America's commencement of a $10 billion stock offering as proof that things were bad all over.

"Stuff is getting smoked," a trader said. "It's a bloodbath."

But one trader remained somewhat upbeat.

"Well, the good news is this will bring the comeback around a little quicker," he said. "I figure the rest of this year is toast and by this time next year it will all be looking a lot better. In the meantime, wine and tequila should get us through."

Auto sector under pressure

Fitch Ratings cut its grade on Ford Monday, citing the current economic crunch's effect on sales throughout the sector.

A trader said Ford's long bonds, like its benchmark 7.45% notes due 2031, were the victim of a beat down, ending the day at 33 bid, 34 offered.

"Only a few weeks ago, they were 53 bid, 54 offered," he said.

Another source called that issue down nearly 3 points to 34 bid.

That same source called GM's debt down in the neighborhood of 2 points, its benchmark 8 3/8% notes due 2033 at 33 bid and its 7 1/8% notes due 2013 at 34.5 bid.

At another desk, a trader quoted the 8 3/8% notes at 30 bid, 35 offered and the 7.2% notes due 2011 at 46 bid, 48 offered. He added that GM's GMAC LLC lending arm was trading at about those same levels.

Late last month, the automakers reported hefty declines in sales, which fell at lest 17%. Consumers, already drained by higher commodity prices, such as food and gas, are moving away from the larger sports utility vehicles and trucks that make up the majority of both Ford and GM's catalog in favor of cars with greater fuel economy. In the past year, GM has lost more than half of its market value, while Ford lost nearly half.

Over at GM, the company has further struggled as losses at its GMAC operations have piled up and its commitment to help offspring Delphi has increased incrementally.

Just a few weeks ago, Delphi's bonds were trading close to 20. Now, the bonds are at 10.5. The weakening debt comes even as the automotive parts supplier maintains that it can find the funding it needs to exit bankruptcy.

On Friday, Delphi amended its reorganization plan, which asks for less money than originally planned to leave Chapter 11 protections. However, creditors' recoveries were also slashed.

The company is seeking at least $3.5 billion to exit bankruptcy, where it has spent the better part of the past three years.

"I am confident we will get this next step done," Steve Miller, Delphi's executive chairman, said at Thursday's Automotive Supplier Finance Summit.

However, Miller said he is looking to get the financing now, in lieu of waiting up to 18 months for the federal government's loans to automakers to be distributed.

Casinos not recession proof

The gaming arena continues to show marked declines, though some areas are looking at ways to increase revenues.

Early in the session, a trader saw Harrah's 10¾% notes due 2016 trading at a new low of 40.5, though he said the paper "fought back" to finish at 43 bid, 44 offered.

The trader also saw Trump Entertainment's 8½% notes due 2015 slip to 36 bid, 37 offered.

At another desk, Harrah's 5¾% notes due 2017 were seen more than 4 points softer at 19.5 bid, while MGM Mirage's 6 5/8% notes due 2015 slipped 3 points to 89.5. Station Casinos' 6% notes due 2012 fell nearly 3 points to 48.25 bid and Boyd Gaming's 7¾% notes due 2012 dropped more than 2 points to end at 83.5 bid.

Another trader said Trump's paper fell into the mid-30s, from around 40 at the beginning of last week.

The previously considered "recession proof" sector has disproved that notion ever since the subprime mortgage meltdown hit full swing. Weary consumers have chosen to stay home rather than try their hand at the slots, which has resulted in numerous losses for the sector at large.

But Atlantic City is trying to stem those losses by reconsidering a blanket smoking ban that many critics have said would adversely affect already struggling gaming operators. The City Council of the Jersey Shore gaming center plans to meet Wednesday to discuss delaying the ban that is scheduled to start Oct. 15.

Broad market slides

"Everything is lower and for sale," a distressed trader said of the overall market.

Idearc Inc.'s 8% notes due 2016 slipped back to around 25, while Lehman Brothers' senior paper dipped slightly to 12.5.

However, traders reported that trading action in finance-related names had dropped off from the peaks last week.

Freescale Semiconductors' 8 7/8% notes due 2014 were quoted at 59 bid, 60 offered, down from 63 on Friday. Another source placed the issue at 59.75 bid, down more than 5 points.

The drop in the name came after Standard & Poor's placed the company on watch, citing the Freescale's decision to either sell part or all of its cellular handset chipset products business.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.