GM bank debt gyrates, bonds lower; Tembec bonds continue fall

By Paul Deckelman and Sara Rosenberg

New York, June 20 - Levels on General Motors Corp.'s revolver bounced around during the session, widening out immediately following the amendment announcement and then falling lower as sellers emerged, according to traders.

The Detroit giant's junk bonds, meantime, were seen lower by traders, after both Moody's Investors Service and Standard & Poor's announced that they were downgrading GM's senior unsecured debt ratings - because its new secured financing pushes GM's unsecured bonds further to the back of the line in the event of a default.

The GM downgrades also helped push some of the automotive parts supplier names lower, including bankrupt former GM subsidiary Delphi Corp., whose faltering financial fortunes remain closely tied to those of its erstwhile corporate parent, still its biggest customer.

Apart from the automotive names, Tembec Industries Inc.'s bonds continued to retreat on investor fears that Canada's government might not meet a Friday deadline for signing off on a U.S.-Canada trade dispute settlement that could potentially mean over C$300 million for the cash-strapped Montreal-based forest products company.

Late in the morning Tuesday, General Motors' revealed plans for an amendment to its existing $5.6 billion unsecured revolving credit facility under which all existing lenders will receive a 20% reduction in their commitments and have the opportunity to extend to 2011 in return for collateral, pricing and structural enhancements.

GM's revolver closed out the day quoted at 95 bid, 95.75 offered, down about half a point from Monday's closing levels of 95.5 bid, 96.5 offered, traders said, pointing to the company's amendment announcement as the impetus for the downturn.

However, quotes did not drop off all that quickly after the news was released. First levels were seen really wide at 95.5 bid, 97.5 offered, as traders were trying to find the market, one of them explained. Then trades went off at various levels, with some happening at 96, some happening below 96 and so on until the bank debt finally settled in the 95 bid, 95.75 offered range.

"We're just seeing a lot of sellers here," one trader remarked. "People aren't in love with the new secured deal."

"The market doesn't feel great. Everything felt weaker by an eighth to a quarter today on market technicals. And [GM] bonds are off," another trader said in explanation of the GM revolver performance.

Bank loan market sources said that pricing on GM's amended facility (B2/B+/BB) is expected to fall in the range of Libor plus 200 to 225 basis points, depending on ratings.

Collateral will consist of certain North American accounts receivable and inventory of GM, Saturn Corp. and GM of Canada Ltd., certain plants, property and equipment of GM of Canada Ltd. and a pledge of 65% of the stock of the holding company for GM's indirect subsidiary GM de Mexico.

With this amendment, any existing uncertainty as to whether the bank syndicate will be required to honor a borrowing request would be removed.

The amendment, which is anticipated to be completed by the end of July, must be approved by lenders with greater than 50% of the loan commitment.

The Detroit-based automaker has already received formal indications that the majority of its lending bank syndicate agreed to the amendment and extension.

GM bonds drop

That amendment, meantime, was causing problems for GM's bondholders. A trader said that the carmaker was "the big rating news," as he pegged its benchmark 8 3/8% notes due 2033 half a point lower at 75.75 bid, 76.25 offered. Another trader saw those GM bonds down a full poin, at 75.5 bid, 76.5 offered, although he saw only minimal erosion - a quarter point - in the General Motors Acceptance Corp. 8% notes due 2031, which closed at 94.5 bid, 94.5 offered. In their downgrade messages, Moody's and S&P did not alter the ratings of the financing subsidiary.

Both of the agencies did, however, express concern that GM's new secured credit bank facility - which gives those lenders security in certain GM collateral - thus leaves less in the way of collateral to cover the bonds and other unsecured GM debt in the event of a default. S&P dropped the unsecured rating a notch to B-, while Moody's did likewise, lowering it to Caa1.

Other auto names lower

The GM downgrades seemed to have a ripple effect among some of the names in the auto parts sector, who depend on GM as a large customer. A trader called the whole parts sector "a little weaker," pegging Delphi Corp.'s 6.55% notes due 2006 at 82 bid, 83 offered, down three points on the day. He also pegged American Axle & Manufacturing Holdings, Inc.'s 5¼% notes due 2014 down a full point at 81.5 bid, 82.5 offered.

Another trader saw the Delphi 6.55s off 1½ points at 83 bid, 84 offered, while the bankrupt Troy, Mich.-based parts maker's 7 1/8% notes due 2029 were 1¾ points down at 77 bid, 78 offered.

Among other names, bankrupt Toledo, Ohio-based parts maker Dana Corp.'s 6½% notes due 2008 were 1½ points lower at 85 bid, 86 offered, while its 7% notes due 2028 were ¾ point off at 76.5 bid, 77 offered. However he saw its 5.85% notes due 2015 unchanged at 75 bid, 76 offered.

Bankrupt Novi, Mich.-based vehicle frame maker Tower Automotive Inc.'s 12% notes due 2013 dropped 2½ points on the session to 68.125.

Collins & Aikman loan gains

On the upside, Collins & Aikman Corp.'s bank debt closed out the session stronger by about half a point, basically just recouping some losses that were experienced on Monday, according to a trader.

The paper went out Tuesday at 94 bid, 95 offered, up around half a point on a day-over-day basis, the trader said.

On Monday, the bankrupt Troy, Mich.-based automotive interior components maker's bank debt had fallen off a bit as investors feared that upcoming financials may not be all that positive and it was heard that there was a "big block of bonds that pushed it lower," the trader explained.

Adelphia loans lower

Outside of the automotive realm, Adelphia Communications Corp.'s Century Old and Century New bank debt headed lower on Tuesday after experiencing a bit of a run-up late last week following various private lender calls, according to a trader.

The bankrupt Greenwood Village, Colo.-based cable company's Century Old and Century New bank debt closed out Tuesday at 94.5 bid, 95.5 offered, down from previous levels of 96 bid, 97 offered, the trader said.

Tembec lower on pact worries

Back in the bond market, Tembec's bonds - which had weakened substantially on Monday - were again on the downside on Tuesday, a trader quoting the company's 8 5/8% notes due 2009 at 51 bid, 52 offered, a 2 point loser. The trader cited the possibility that Canada's parliament might adjourn for the summer on Friday without having ratified the trade dispute settlement with the United States, which had imposed billions of dollars in tariffs on Canadian lumber companies over the past several years.

"They may wait till they come back in the fall to pass it" - but in the meantime, cash-strapped Tembec "could use the money [it would receive as a tariff refund under the settlement] right now." When the settlement is finally ratified, Tembec stands to get some C$317 million.

The trader said that Tembec's troubles did not affect the rest of the forest products sector, which was only down about ¼ point on the day. "Tembec," he said, "was the weak sister."

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