GMAC gets bump from Freddie, Fannie plan; United Rentals debt up on SEC settlement; UAL loan steady

By Stephanie N. Rotondo

Portland, Ore., Sept. 8 - The distressed bond market started the week off firmer, traders reported, helped out by the news of a government bailout for Freddie Mac and Fannie Mae.

That news directly affected mortgage lender GMAC LLC, as well as the rest of the financial sector, sources said. According to several news reports, analysts and investors alike hope the takeover plan will put a temporary floor in place to allow the economy - specifically the mortgage sector - to recover somewhat. GMAC's bonds ended the session up at least a point.

Meanwhile, United Rentals Inc. announced that it reached a settlement with the Securities and Exchange Commission regarding a fraud inquiry. The equipment rental's debt inched up during trading by 1 to 2 points as a result.

Rumor of a bankruptcy filing at UAL Corp. caused the company's stock to crash and burn before the story was found to be erroneous. Though the stock pared its losses, bond traders saw little action in the name, while bank debt sources said the airlines term loan held steady.

GMAC, financials get boost

The government bailout of mortgage lenders Freddie Mac and Fannie Mae gave the financial sector a boost, traders reported, and GMAC's bonds were just one of many to post gains on the day.

One trader said General Motors Corp.'s lending arm's short issues were among the most active. He quoted the 6 7/8% notes due 2011 at 64, noting that the issue opened at 65 and closed Friday at 62 bid, 63 offered.

At another desk, GMAC's 6 7/8% notes due 2012 moved up nearly a point to 58.5.

Another source called the benchmark 8% bonds due 2031 1.5 points higher at 55.5.

With fallout from the subprime mortgage meltdown still being felt, the government's intervention into the situation encouraged some investors, as was evidenced by the 290.43-point gain in the Dow Jones Industrial Average. Several news reports indicated that the goal of the U.S. government was to, at the very least, put a floor down amid the current economic troubles.

Under the plan, the U.S. government will act as conservator of the two companies until the entities can manage on their own once again. The conservatorship will allow the companies to continue to publicly trade, though stockholders are expected to be jilted of any claims.

The Treasury Department took $1 billion in preferred senior stock of both Freddie and Fannie, and that amount could increase to $100 billion each. The stock is senior to existing preferreds, as well as common shares. Warrants to buy up to 79.9% of common stock are also part of the plan.

GMAC has been hit hard during the financial and mortgage crisis of the millennium. Not least of its worries is its flailing Residential Capital LLC subsidiary, which has posted losses on top of losses for some time. Last week, GMAC said it was looking to offset some of that damage by cutting jobs and shuttering its retail stores.

In the rest of the sector, a trader saw MBIA Inc.'s 144% surplus notes due 2033 at 88.5 bid, or 2 points better.

He saw Residential Capital LLC's 6½% notes due 2013 a point better at 25 bid. Another trader saw those notes at 26.125 bid, up from 24.75 on Friday.

Another trader saw Washington Mutual Inc.'s split-rated 8¼% notes due 2010 trading at 61 bid, down 5 points from Friday's closing levels, though "only odd-lots were trading." He called the bonds 2 points lower than Friday's final round-lot trade of 63 bid.

United Rentals gains

United Rentals' debt moved up during the session after the news that the company had settled with the Securities and Exchange Commission.

A trader said the 7¾% notes due 2013 "seemed somewhat active," gaining about a point to end at 79.75 bid, 80.5 offered.

Another trader quoted the 7¾% notes at 79.75, and the 6½% notes due 2012 at 89.25 bid, 89.75 offered. Another market source placed the 7% notes due 2014 at 76 bid, up a point.

The SEC had investigated the equipment rental company for fraud, claiming United Rentals engaged in fraudulent activities in an effort to meet earnings and analyst expectations. While the company neither confirmed nor denied the claims, it opted to pay $14 million to settle the case.

United Rentals is a Greenwich, Conn.-based construction equipment rental company.

UAL bonds quiet

United Airlines parent UAL saw its stock dive after a news article came out claiming the company had filed for Chapter 11 protections.

It turned out the news report - first seen at Tribune Co.'s Sun Sentinel - was merely a "recycled" article from 2002, when the company did in fact file for bankruptcy.

But that did not stop the misinformation from wrecking havoc on the market.

"This morning, it was really busy for about 30 minutes," said one distressed bond trader. "Then the UAL rumor hit before everyone found out it was complete bunk. Then everything ground to a halt."

Another trader speculated that lawsuits might follow, as investors as a whole sold off their shares, sending the company's stock to a low of $3.

However, once the report was refuted, the stock edged back up, closing at $10.92, down $1.38, or 11.22%.

In the bonds, a trader said "it looks like people are trying to pick up the bonds," adding, "all I see are bids." Other traders said they did not see much trading in the airline's debt.

In the bank debt, the term loan was quoted at 72½ bid, 73½ offered, unchanged from Friday's closing levels, a trader said.

"When the fake news came out, there was a lot of inquiry but nothing traded during that time. It hasn't been very active," the trader added.

UAL is a Chicago, Ill.-based commercial airline.

Broad market mostly better

A trader said Burlington Coat Factory Warehouse Corp.'s 11 1/8% notes due 2015 hit a high of 68, before coming back to end at 66.25, up from 64 last week.

The telecommunications sector was deemed the "volume leader," with Charter Communications Inc.'s 11% notes due 2015 edging up a point to 76.75 bid, 77.75 offered and Sprint Nextel Corp.'s 6% notes due 2016 at 89.5 bid, 90.5 offered.

One market source said Ford Motor Co.'s long bonds continue to move up, closing at 51 bid, 52 offered from 50.5 previously.

WCI Communities Inc.'s 9 1/8% notes were called unchanged to a half-point better at 39 bid, 40.5 offered, while the 6 5/8% notes due 2015 were at 45.5.

"Maybe it's just short-covering pushing it up," a trader said.

R.H. Donnelley Corp.'s subsidiary, Dex Media Inc., saw its 8% notes due 2013 end at 60 bid, 61 offered. Idearc Inc.'s 8% notes due 2016 closed 2.5 points better at 47 bid.

A trader saw MagnaChip Semiconductor Ltd's 8% notes due 2014 up 1 point at 36, and said its 6 7/8% notes and floating-rate notes due 2011 were down 2 points at 56.

However, another market source, who had seen the bonds trade higher Friday on news the company would look to shore up its balance sheet with additional bank financing, saw the 8s down 4 points at 37.5 bid, while the 6 7/8s were slightly lower at just under the 60 mark.

Sara Rosenberg and Paul Deckelman 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.