Lehman debt steady as government plans economic rescue; GM, Ford structures differ on drawdown

By Stephanie N. Rotondo

Portland, Ore., Sept. 22 - It was "still the same" in distressed land, a trader said, as the market remained fixated on the financial sector.

Lehman Brothers Holdings Inc. was dubbed the volume leader, marking a straight week of the company's dominance in the bond market. Still, the bonds have seemingly found a plateau to rest on while the government irons out a plan to help struggling companies unload "bad" debt.

Meanwhile, news that General Motors Corp. was planning on drawing down its revolving credit facility put pressure on the automaker's bank debt, as well as that of rival Ford Motor Co. But on the bond side, it was a different story. GM's corporate paper finished the day mixed, while Ford's bonds were essentially unchanged.

As volatility remains in full effect, market sources are still wondering how to spin the current situation.

"The swings are getting ludicrous," a trader said. "People are taking 2 to 3 points out of trades."

As the stock market gave back Friday's gains, one trader speculated "there was too much happy talk on Friday, too much euphoria."

He added that trading was not as active as it had been, opining that volumes were about half that of Friday.

Lehman debt steady

As the government tried to nail down a plan that would enable financial institutions to unload so-called bad debt, Lehman paper continued to be the volume leader in the distressed world.

Traders reported that the bankrupt investment bank's debt held steady at 19 bid, 20 offered in the senior debt and around 25 cents in the subordinated notes.

According to several news reports, Congress and the Bush Administration are quickly ironing out the details to a $700 billion bailout plan. A complete plan is expected to go to vote within the week.

So far, the deal includes mortgage aid, as well as congressional oversight. Judges will have the ability to lower monthly mortgage payments for bankrupt homeowners. In return for the government taking on bad debt from overloaded companies, executive pay packages will be limited. The U.S. government will also receive stock in the companies it buys the debt from.

The program is slated to end at the end of this year, not in two years like was originally expected.

But in the interim, market players can only guess what the rescue plan will include - and whether it will work.

"It is a very different market because while they are still figuring out what the meat and potatoes of this salvage plan will be...everybody's guessing," a trader said.

GM, Ford structures differ

General Motors' credit facility debt posted some losses during the trading session as investors reacted to the company's plan to draw down its revolver in full, according to a trader, who said that the performance in General Motors helped push Ford Motor's term loan lower as well.

Also affecting the debt's performance on Monday was the fact that distressed loan names in general were down about 1 to 2 points on the day, traders remarked.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 71 bid, 73 offered, down from 73 bid, 75 offered, and its revolver, which was pretty active on the day, quoted at 69 bid, 71 offered, down from 71 bid, 73 offered, one trader said.

A second trader placed General Motors' term loan at 70.5 bid, 72.5 offered, down from Friday's levels of 72.5 bid, 74 offered.

In the bonds, A source saw GM's 7 1/8% notes due 2013 slip to 58.5 bid, while its benchmark 8 3/8% notes due 2033 gained a point to close at 52.5 bid. GM's lending arm, GMAC LLC, saw its 6 7/8% notes due 2012 fall 2 points to 51 bid.

Meanwhile, Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 73 bid, 74 offered, down two points from previous levels as well, the trader added. Another trader quoted the 7.45% notes due 2031 at 54 bid, 54.75, adding that the debt has been in that area for a few days.

"They are still significantly better then they had been," he said.

Late Friday, General Motors announced that it intends to borrow the remaining $3.5 billion of its $4.5 billion secured revolver.

The company said that the draw is being done to maintain a high level of financial flexibility for its ongoing restructuring during the current uncertain times in the capital markets.

Proceeds from the draw would not only improve liquidity, but they would also be available for the retirement of $750 million of debt maturities coming due in October, and to pay Delphi Corp. in excess of $1.2 billion as part of its reorganization efforts, assuming court approval of the revised agreements between General Motors and Delphi that were filed with the court on Sept. 12.

A trader said Delphi's debt has been inching up of late, pegging the bonds generically at 18 bid, 19 offered. Another source called the paper a point better at 18.

"Accessing the funds available to us is a prudent liquidity measure. Drawing on the revolver now improves our liquidity position at a time when the capital markets have become more challenging," Walter Borst, GM's treasurer, said in a news release.

In addition, on Friday, General Motors announced the completion of a $322 million debt to equity exchange, which results in improved liquidity since debt and interest costs were reduced.

Under the exchange, the company issued 28.3 million new shares of its common stock in exchange for $322 million principal amount of its 1.5% series D senior convertible debentures due in June 2009.

Broad market mixed

A trader said Sprint Nextel Corp.'s 6% notes due 2016 were trading actively, finishing the session at 86.25 bid, 87 offered.

The action in the name came after company management said it was committed to turning around its business along with the Nextel franchise, instead of selling off the underperforming segment.

Meanwhile, Idearc Inc.'s 8% notes due 2016 were called weaker around 36, while Dex Media Inc.'s 8% notes due 2013 gained over 2 points to close at 58.5 bid. Last week, Deutsche Bank issued a "hold" rating on Idearc's stock, stating that efforts to improve its balance sheet might have some momentum.

A trader called Trump Entertainment Resorts Inc.'s 8½% notes due 2015 "an interesting one," as the bonds ran up several points to a high of 47 bid, 48 offered, before losing ground to end at 42 bid, 44 offered. Another trader said the bonds closed on Friday at 41 and got as good as 47 early on in Monday's session.

The second trader said a short squeeze could have been the culprit in Trump's run-up, as well as many other names, as investors continue to function in liquidation mode.

"It is making trading erratic," he said. "But it looks like it's starting to wind down. But you never know what is going to pop up tomorrow."

"There is lots of spoofing going on," said another trader. "Some of it is legitimate and a lot of people just don't know where stuff is."

Blockbuster Inc.'s 9% notes due 2011 were "a little lower," a trader said, at 75.5 bid, 76 offered.

Charter Communications Inc.'s 11% notes due 2015 were "maybe a smidge weaker," the trader continued, at 71.5 bid, 72 offered. At another desk, the 8% notes due 2012 were seen down nearly a deuce at 91.75 bid.

Sara Rosenberg contributed to this article.

© 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.