GM skids on big loss; Boyd booms on project delay; Elan, Idearc tumble anew; Clear Channel rolls bridge

By Paul Deckelman and Paul A. Harris

New York, Aug. 1 - It was an inauspicious start to August for General Motors Corp., as the automotive giant's bonds fell Friday after it reported a stunning $15.5 billion second-quarter loss, its results dragged down by the full impact of soaring gasoline prices making itself known on car, truck and SUV sales. Also lower were the bonds of GM's 49%-owned vehicle-financing unit, GMAC LLC - which has additionally suffered from the sharp downturn in the mortgage industry, another area in which it is active - as well as GM's domestic arch-rival, Ford Motor Co. Besides the GM results, the two carmakers' bonds were also towed lower by yet another round of perfectly awful company and industrywide monthly sales totals, which were released during the session.

Earnings were on the minds of a lot of investors, including those holding paper from Nortel Networks Ltd., which reported disappointing results.

On the upside, Boyd Gaming Corp.'s bonds - which had risen by several points Thursday in anticipation of Friday's numbers - continued to gain on Friday, as the Las Vegas-based casino operator reported profits which were lower than a year ago - not unexpected in light to the troubles shaking the whole gambling sector - but which did beat Wall Street expectations. Debtholders, as well as shareholders, were also cheered by Boyd's decision to suspend work on a costly development project it has been working on.

Caraustar Industries Inc.'s bonds were better despite a wider quarterly loss - although its shares most definitely were not - helped by management's reiteration of its commitment to refinance that debt.

Although most of the action was earnings-driven, some was not; Idearc Inc. - which reported earnings back on Tuesday - continued to be beaten down, as those poor numbers seemed to be the catalyst for investor angst about the viability of the Dallas-based telephone directory publisher's whole business model.

And Elan plc's bonds, which lost ground earlier in the week on disappointing research data on a new Alzheimer's drug it has been developing, plunged on Friday amid reports of serious new problems with one of its other medications.

In the primary arena, the newly privatized Clear Channel Communications Inc. rolled over $2 billion of bridge loans connected with its just-completed leveraged buyout into new notes - the latest in a series of such transactions undertaken over the past several weeks by bought-out companies. High yield syndicate sources also heard that German medical devices maker Fresenius, doing a similar financing transaction, might do the whole deal in dollar-denominated instruments.

Market indicators again lower

Back among the established issues, a trader said that the widely followed CDX index of junk bond performance was down ¼ point on Friday, quoting it at around 93 bid, 93¼ offered. The KDP High Yield Daily Index fell by 27 basis points, replicating Thursday's performance, to end at 70.42, although its yield declined by 1 bp to 10.58%.

In the broader market, advancing trailed decliners by 4-to-3 margin. Activity, represented by dollar volume, declined by 26% from the levels seen in Thursday's session.

A trader said that the market "in general is so incredibly quiet, I couldn't even put a tone on it." He said that there was "no widespread tone," with most bond-price activity that did take place being specific credit-related.

He also noted that "this is the beginning of the extremely popular vacation weeks in August, like every year."

It was "a typical mid-summer Friday," another trader said.

Overall, "the market was softer, weaker," a third said. Things moved "in spurts."

GM falls after mega-loss

To the surprise of exactly nobody, General Motors posted a second-quarter loss - but the Hummer-sized magnitude of the red ink was an eye-opener. The loss came in at $15.5 billion, or $27.33 per share, in stark contrast to the year-ago quarter, when the Detroit giant was still able to boast a net profit of $891 million, or $1.56 per share.

After the automaker reported its massive quarterly loss, a trader saw GM's widely traded benchmark 8 3/8% bonds due 2033 at 47.5 bid, which he pegged down 2¼ points on the day, while seeing its 7.20% notes due 2011, its next most-active bond, down 3 points on the day at 62 bid. He saw GM's 7.70% notes due 2016 down 2 points at 49.5.

Another trader saw the GM benchmarks at 47.5 bid, 48.5 offered, down 2 points. GM's 7 1/8% notes due 2013 lost 3 points to end at 53, while another market source saw those latter bonds down more than 4 points at 52.5.

The quarterly loss was by no means the largest-ever for GM - that would be the $39 billion which it lost in the 2007 third quarter - but it was still bad enough to qualify as third-worst.

"Not chump change," one trader said, while another noted - ironically - "those people sure know how to lose money when they set their minds to it."

Revenue for the latest quarter was $38.2 billion, down $8.5 billion from a year earlier, reflecting the sharp slide seen its North American sales, which were down 20% year over year, causing segment revenues to plunge by nearly one-third, to $19.8 billion. In fact, GM racked up record revenues in Europe and saw sales rise elsewhere in the rest of the world as well, although it was not enough to offset the huge drag on revenues and earnings coming from its domestic operations, almost all of it in its larger, gas-guzzling vehicles - SUVs like the humongous Hummer, pickup trucks and big sedans.

The loss included $9.1 billion in one-time charges, including $3.3 billion for the buyouts of 19,000 U.S. hourly workers as part of GM's efforts to cut costs. Without those one-time charges, GM lost $6.3 billion, or $11.21 per share - still more than four times the roughly $2.60 of red ink that Wall Street had been expecting. Analysts, on average, had also been anticipating revenues for the quarter approaching the $45 billion mark.

Bad as things were in the second quarter for GM, the third quarter, so far, does not appear to be getting any better. Later in the day, while investors were still trying to absorb the tale of woe reported in the morning, GM said its July domestic vehicle sales plunged 26%, with truck and SUV sales nosediving 35% year-over-year. While sales actually were up in some parts of the GM lineup - the smaller, fuel-thrifty Chevrolet Malibu sedan, for instance, was up 79% - overall car sales fell 12%, hurt by a shortage of the small cars the buyers wanted and a surplus of the big cars which they didn't.

GM's New York Stock Exchange-traded shares fell 84 cents on the day, or 7.59%, to $10.23, on volume of 42 million shares, about 1½ times the usual turnover.

GM pulls others lower

While GM's own bonds were falling, they were also dragging some other issues lower. A trader said GM's GMAC financing arm's 8% bonds due 2031moved down to 54.75 bid from 57.5 on Thursday, while its 7% notes due 2012 were a point down at 62 bid. In the really short GM paper, its 5 5/8% notes coming due in May 2009 traded at 90.25, with what the trader called the "astronomical" yield of 19.75%, versus 91.5 bid at the close Thursday.

Another market source said that the GMAC 6 7/8% notes due 2012 were down 2 points to around the 60 level, its 6 7/8% 2011 notes were also down a deuce at 64, while the 5 5/8s were down ½ point at 91.

Also lower were Ford's 7.45% bonds due 2031, which dropped 2¼ points to 50 bid, a trader said, although another saw them down 1 point at 48.5 bid, 49.5 offered. Ford also reported sharply lower sales in July versus a year-ago - down 15% overall, while truck and SUV sales slid 22%. Ford's car sales were about unchanged. Like GM, Ford's totals were hurt by a lack of the much-desired smaller cars. Ford sold every one of its small, fuel-efficient Focus card that it could get to its showrooms; sales were up 16% from a year ago.

Ford's vehicle financing division, Ford Motor Credit Co.'s 12% notes due 2015 lost 3 points to 81, and its 7% notes due 2013 were down 1 point at 70.

Nortel off on numbers, forecast

Canadian telecommunications equipment manufacturer Nortel Networks' bonds and shares were lower after the company posted a wider second-quarter loss and forecast a tough economic environment ahead.

A trader saw its floating-rate notes due 2011 at 94, down ¾ point, while its 10 1/8% notes due 2013 fell to 96.375 from 98 previously. Another market source saw them at 97 bid, down 1½ points.

Nortel's NYSE-traded shares lost $1.12, or 14.66%, to $6.52, on volume of 22 million shares, triple the norm.

Besides reporting a wider loss, the company warned of a tough economic environment, higher competition and lower spending by certain customers.

Also in the telecom area, a trader saw active dealings in Sprint Corp.'s 6% notes due 2016 at 84.375, up 3/8 from Thursday, though on no news.

Boyd better with project on hold

In the gaming sector, a trader said that Boyd Gaming's bonds "did pretty well, up 3 points [Thursday] and up another 3 to 4 [Friday]." Boyd's 7¾% notes due 2012 were up 3 points on the day at 86.

A second trader also saw those bonds at 86, which he called a 3 point rise. He saw Boyd's 6¾% notes due 2014 at 76.375, a rise of nearly 3 points, while its 7 1/8% notes due 2016 firmed to 74.75 bid versus 72 late Thursday. Elsewhere in the sector, he saw Wynn Las Vegas LLC's 6 5/8% notes due 2014 up ½ point at 90.75, "maybe in response to Boyd's gains."

The company reported second-quarter net income of $21.7 million, or 25 cents per share, versus $22.1 million, or 25 cents per share, in the second quarter of 2007. However, excluding one-time items, profit from continuing operations was $26.4 million, or 30 cents per share, - down from $39.9 million, or 45 cents per share, in the year-ago period, but up from the around 27 cents per share that Wall Street had been expecting.

The trader saw Isle of Capri Casinos Inc.'s 7% notes due 2014 lower by ¼ point at 68.5, and Station Casinos Inc.'s 6% notes due 2012 at 67.25 bid, up ¼ point on the day. However, he saw Station's 7¾% notes due 2016 at 65.75, "down 11/4, so go figure."

Yet another trader pegged the Boyd 7¾% notes at 85.5 bid, 86.5 offered, which he said was almost 4 points higher, while the 63/4s were at 75.5 bid, 76.5 offered, which he said was about 2 points higher. Besides the earnings, he noted that Boyd had said it would suspend work for at least nine months to a year on its ambitious Echelon development project on the Las Vegas Strip, as a means of conserving capital.

Boyd broke ground on the Echelon - slated to rise on Las Vegas Strip site formerly occupied by the quintessential old-line Vegas resort, the Stardust - in 2007, estimating its price tag then at over $4 billion. The development, which was to have opened in 2010, calls for a 140,000-square-foot casino, nearly 5,000 guest rooms in five hotels, two theaters and about 750,000 square feet of meeting and exhibit space on 87 acres.

Besides Boyd's big gains, the trader saw other gaming names unchanged to off slightly. Trump Entertainment Resorts Inc.'s 8½% notes due 2015 "didn't do anything," easing ½ point to 48 bid, 49 offered. He saw Wynn's 6 5/8s down ½ point at 90.5 bid, 91.5 offered, while Station Casino's were unchanged at 67 bid, 68 offered.

Caraustar gains despite numbers

Also on the upside, Caraustar's 7 3/8% notes due 2009 were up 2 points at 83.5 bid, 84.5 offered, - even though it Nasdaq-traded stock dropped 26% - with a trader citing the Austell, Ga.-based packaging company's "talk about their refinancing," with the company saying it was actively pursing options to refinance the bonds.

It reported a net loss of $3.6 million, or 13 cents per share, on $217 million in sales, compared with a net loss of $2.3 million, or 8 cents per share, on $221.2 million in sales in the second quarter of 2007.

"Management is working diligently on refinancing its 7.375% senior notes," the company statement declared. In July, it announced the sale of its 50% interest in Premier Boxboard Limited, LLC to joint venture partner Temple Inland, Inc. for $62 million pre-tax. The company used half those proceeds to repay all outstanding debt under its senior credit facility and had excess sale proceeds of approximately $31 million as well as availability under the revolving portion of the facility of approximately $42 million post-transaction.

"Completing the sale of our interest in PBL was a first step and raised a portion of the funds necessary to refinance the company's senior notes," Caraustar said. "We have engaged J.P. Morgan Securities Inc. to assist in evaluating financial alternatives and expect to announce additional components of the refinancing as we complete them."

Idearc continues slide

Back on the downside, a trader saw Idearc's 8% notes due 2016 at 41 bid, down 2 more points, and said that the bonds were moving lower "every day" and "must have lost 20 points from the end of June to the end of July." He called the downturn "relentless."

Another trader saw those notes down 3 points at 40 bid, 42 offered.

Idearc's bonds dropped some 10 points on Tuesday after it reported poor quarterly numbers, finishing at about the 49-50 mark. They seemed to firm about 2 points Wednesday to the 50-51 region, but then gave that all back and then some on Thursday, when they had fallen back another 6 points to the 44 bid level.

Analysts noted the heavy impact the economic downturn was having on its Yellow Pages products and also noted that only a small portion of its revenues come from on-line directories, which are seen as a potentially more lucrative revenue source than the old-fashioned printed telephone-book business.

Elan down, again

A trader said that Elan's bonds "got mushed" with its 8 7/8% notes due 2013 down 15 points at 84 bid, 85 offered, while its 7¾% notes due 2011 fell as much as 10 points on the session before ending down 7 points at 88 bid, 89 offered.

It was the second steep fall that week for the Irish drugmaker's bonds. On Wednesday, Elan's bonds fell and its stock got whacked after a much-ballyhooed presentation of test results from an Alzheimer's drug it is working on with partner Wyeth turned out to be anti-climactic, with the long-awaited data proving to be inconclusive at best and showing potential problems with the medication.

On Friday, investors found news about one of its other medications to be the bitter pill they had to swallow, with new questions raised about Tysabri - a multiple sclerosis drug it developed with Biogen Idec Inc. - after the companies reported two new cases of a potentially fatal side effect that had caused the drug to be pulled from the market in 2005 and kept off the market for most of the following year, until federal authorities finally allowed it to be sold under restricted conditions.

Elan and Biogen Idec on Friday defended Tysabri, saying the treatment is still worth the risk to patients, and said they have no plans to take it off the market once again.

One deal in the market

A high-yield syndicate official said that the Friday session in the junk market was quiet.

There was no news in the primary market. No deals were priced and none were announced.

As the week closed there was a single deal on the road: Allis-Chalmers Energy Inc. began a roadshow on Wednesday for its $350 million offering of 10-year senior notes (B2) via RBC Capital Markets and Goldman Sachs.

That deal is expected to price late in the coming week.

The Ice Age in Europe

Fresenius SE disclosed in an S-4 document filed Friday with the Securities and Exchange Commission that financing for its acquisition of APP Pharmaceuticals, Inc. includes a commitment for a $1.65 billion bridge loan that could be replaced by high-yield bonds.

Earlier information from sources close to the deal indicated that the high-yield portion would be approximately $1.5 billion equivalent, in dollar and euro denominations.

However on Friday a senior high-yield source in Europe, not in the deal, said that the word going around on the Fresenius transaction is that it will contain no euro-denominated notes, and added that this expectation is in line with the current frozen condition of the European high-yield market.

However, the official added, European high-yield watchers are hoping that Fresenius could serve as an "icebreaker," for the European market.

"Right now there are some bridge-related deals that could come but the market in Europe is unwilling, and will not accept anything," the official said.

On Friday the European high-yield source asserted that the last European issuer to raise cash in the junk market was Akerys Holdings SA, which priced a €300 million issue of three-month Euribor plus 325 basis points seven-year senior floating-rate notes on July 16, 2007, well over a year ago.

The last euro-denominated issuance, the source said, came from U.S.-based Intergen NV which priced €150 million of 8½% senior secured notes due 2017 on July 23, 2007.

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