Ford bonds little affected by Moody's downgrade; Quebecor, Inergy price 10-year offerings

By Paul Deckelman and Paul A. Harris

New York, Jan. 11 - Ford Motor Co.'s bonds and those of its Ford Motor Credit Co. finance arm were seen little changed on Wednesday despite Moody's Investors Service having downgraded the credit ratings of both companies by two notches and keeping their outlooks negative. Traders said that the downgrade - coming several days after a similar move by Standard & Poor's - had been largely expected.

Even so, automotive names in general - which up until Tuesday had firmed smartly since the start of the year - were mostly spinning their wheels for a second straight session, their momentum apparently spent.

Meanwhile a source marked the broad market unchanged on the day.

"New issue volume is the dominant factor," the source commented in a late-day email to Prospect News. "January is going to be a very busy month."

For the second consecutive day, the junk market saw bonds price in the new issue market.

Quebecor Media Inc. was heard by syndicate sources to have priced the new year's first fairly sizable deal - over $500 million - as a quickly shopped drive-by deal, while Inergy, LP priced a scheduled calendar deal which was in the $200 million range, like Tuesday's offerings from Westlake Chemical Corp. ($250 million) and Nevada Power Co. ($210 million) before it.

Altogether $725 million of issuance priced in two tranches Wednesday, with both deals coming at the tight end of talk and being described as having gone well.

Quebecor's quick-to-market $525 million

Wednesday's biggest deal came, sans roadshow, from Montreal-based diversified media firm Quebecor Media, which priced a $525 million issue of senior notes due March 15, 2016 (B2/B) at par to yield 7¾%.

The yield came at the tight end of the 7¾% to 7 7/8% price talk.

Citigroup, Banc of America Securities and Credit Suisse First Boston ran the books for the debt refinancing deal.

An informed source said that the deal went well and added that the first market for the par-pricing notes was 101.5 bid.

Inergy sells $200 million

The second of Wednesday's two deals came at the heels of a roadshow, and also priced tight to the price talk.

Inergy, LP, issuing in conjunction with Inergy Finance Corp., priced a $200 million issue of senior notes due March 1, 2016 (B1/B) at par to yield 8¼%. Talk was for a yield in the 8 3/8% area.

Lehman Brothers, JP Morgan and Wachovia Securities were joint bookrunners for the debt refinancing deal from the Kansas City, Mo., propane marketing and distribution business.

A syndicate source commented that the Inergy deal also went very well.

Exopack starts next week

News of one new roadshow surfaced during the session.

Boca Raton, Fla., packaging company, Exopack, will begin a roadshow Tuesday for its $235 million offering of eight-year senior notes, via Goldman Sachs.

Proceeds will be used to refinance existing debt related to the acquisition of the company by Sun Capital.

Inergy up in trading

The new Quebecor Media 7 ¾% notes due 2016 appeared too late in the session for any meaningful aftermarket activity, traders said.

They saw the new Inergy Finance 8¼% notes due 2016 having firmed from their par issue price.

One trader saw the new bonds trading at 101 bid, 101.75 offered, while a second saw them at 101.75 bid, 101.25 offered.

He also saw the new Westlake Chemical 6 5/8% notes due 2016 trading at par bid to 100.5 offered - little changed from initial secondary levels Tuesday after the bonds were freed, but still up from their 99.674 issue price earlier Tuesday.

Ford steady

Back among the established issues, Ford was seen not much changed on the day, even after Moody's cut Ford's corporate family rating to Ba3 from Baa1 previously, and lowered Ford Motor Credit's previously investment-grade Baa3 rating to Ba2.

The bonds of the Number-Two domestic carmaker "didn't move a hell of a lot," another trader said, quoting its benchmark Ford 7.45% notes due 2031 at 70.5 bid, 71.5 offered, down ¼ point on the session, while Ford Credit's 7% notes due 2013 were also ¼ point lower, at 88.75 bid, 89.75 offered.

"There really wasn't a hell of a lot [of movement], period," he elaborated. "I guess this brought [Moody's ratings] in line with S&P, so I don't think that it was a big to-do, to tell you the truth.

"I believe they were pretty much in line [with S&P], and that's how the dealers were looking at it."

S&P last Thursday announced a two-notch downgrade of Ford and Ford Motor Credit, which dropped their ratings to BB- from BB+ previously. The rating agency also voiced skepticism about whether the carmaker - which late last year unveiled the outlines of a turnaround plan, the details of which it will furnish on Jan. 23 - will in fact be able to actually turn things around, especially given the sharp decline in sales of Ford's bread and butter, the medium- and large-sized sport utility vehicles.

"They were cut, and off a touch," another trader said, seeing the Ford 7.45s at 71 bid, 72 offered. "They were down as much as half a point after the cut, which was somewhat anticipated, but they close and open with like a half-point volatility, no real change there."

Coming on the heels of the S&P ratings cut, he said, Moody's action was expected, so Ford "was not a really big mover."

He saw the Ford Credit 7s hanging in at 89 bid, 90 offered most of the day, little changed, while its 6 5/8% notes due 2008 were at 94 bid, 95 offered, "unchanged, maybe up or down a half [point], but nothing special going on there."

In lowering Ford's ratings, Moody's declared that the move "incorporates the view that the company's financial and competitive position will remain under considerable stress through 2007 despite the potential longer-term benefits that may result from its pending restructuring initiatives."

The rating agency said that Ford's performance - relative to the key drivers of credit quality described in Moody's Rating Methodology for the Global Automotive Industry - "is likely to result in the company's risk profile remaining at the lower end of the 16-company automotive peer group rated by Moody's."

It further said that even as Ford "attempts to reestablish and strengthen its position in the benchmark areas described in the methodology, Moody's believes that leading Asian and European rivals will continue to make notable progress in these same areas, thereby further increasing the competitive and operating challenges faced by Ford."

While it acknowledges that the restructuring plan Ford is expected to unveil later this month is likely to address such problems as sustaining profitable share in core markets, building a competitive cost structure based on efficient capacity utilization, flexible labor costs, and a stable supplier base, generating meaningful levels of free cash flow and achieving competitive returns on investment, "material improvement in operating and financial performance is likely to take several years to achieve. Consequently, Ford's credit metrics will likely remain weak through 2007."

As for Ford Credit, Moody's said that its downgrade of the financial unit "reflects the continuing close operational and financial ties with Ford, and the fact that challenges faced by Ford could have a negative impact on the operations of the finance subsidiary."

In examining the Moody's move, analyst B. Craig Hutson of the Gimme Credit advisory service said in an afternoon research note that "It is pretty obvious that Moody's has scrutinized the 'Way Forward' restructuring plan to be detailed by management on Jan. 23, but the agency does not expect near-term benefits of the plan to offset operating challenges facing the company."

On the plus side, he noted that "Moody's did highlight that Ford's solid liquidity should give the company time to implement its restructuring plan."

Nonetheless, with the ratings agency maintaining Ford's outlook at negative, "we believe further rating downgrades are probable."

Hutson gave a similar assessment to Ford Credit, noting that despite the company's balance sheet strength, the unit pays "high cash dividends" to its parent, and its performance is "not sustainable at lofty levels."

Auto sector weak

With Ford's downgrade the latest piece of bad news to hit the troubled U.S. automotive industry, other auto-related high yield names remained steady to lower, the robust gains seen in the first trading week of the new year apparently now over with.

A trader saw Ford rival General Motors Corp.'s bonds "staying right in their [recent] range" and added that "the auto suppliers all got tagged."

He saw bankrupt Delphi Corp.'s bonds down a point at 55 bid, 57 offered, while the bonds of another bankrupt supplier, Tower Automotive's 12% notes due 2013, were two points down at 79 bid, 81 offered.

"GM really didn't move around," another trader said, pegging its 8 3/8% notes due 2033 at 71 bid, 72 offered, "roughly unchanged."

Yet another trader saw those GM bonds up perhaps a quarter point at 70.75 bid, 71.75 offered, while the company's General Motors Acceptance Corp.'s 8% notes due 2031 were half a point better at 101.5 bid, 102.5 offered.

That trader saw a general deterioration throughout the auto sector, with former Ford unit Visteon Corp.'s 8¼% notes due 2010 down 1¼ points at 86.5 bid, 87.5 offered, and former GM subsidiary Delphi's 6.55% notes due 2006 half a point lower at 55.75 bid, 56.75 offered.

He saw Dura Automotive Systems Inc.'s 9% notes due 2009 two points lower at 55 bid, 57 offered, while the Rochester Hills Mich.-based auto components maker's 8 5/8% notes due 2012 lost a point to end at 84 bid, 85 offered.

Dana Corp.'s bonds were also lower, partly on the general sector weakness, and partly on the Toledo, Ohio-based automotive systems maker's own ratings downgrade, with the Fitch agency slashing its senior unsecured and issuer ratings a full five notches to B from BB- previously, with the possibility of further cuts as well. Fitch cited deteriorating operating results, accounting and financial control problems, and higher debt levels.

The trader saw Dana's 5.85% notes due 2015 down 1½ points at 72 bid, 73 offered.

Another trader even saw Metaldyne Corp. - whose 11% notes due 2012 jumped on Tuesday on the news that the Plymouth, Mich.-based automotive metal stamping company had agreed to sell its underperforming North American metal forging unit in a $129 million deal - as having come down from Tuesday's closing levels.

Those bonds - which had shot up to 85 bid on Tuesday on the news from prior levels around 80 and then came off that peak to end around 83 bid, 85 offered, still up some three points on the day - gave up another point Wednesday to finish at 82 bid, 84 offered.

Amkor dips

Apart from the automotive sector, traders saw Amkor Technology Inc.'s bonds lower, despite a seeming lack of any real negative news about the Chandler, Ariz.-based high-tech manufacturing firm.

One saw its 10½% notes due 2009 at 92.5 bid, 93.5 offered, off half a point, although a second trader did see Amkor's 7¾% notes due 2012 little changed at 87.5 bid, 88.5 offered.

Yet another trader saw those 73/4s down a point at 87 bid, 88 offered, while its 9¼% notes due 2008 were off ¼ point at 97 bid, 98 offered.

Shaw jumps

On the upside, a market source quoted Shaw Communications Inc.'s 8¼% notes due 2010 up more than three points on the session, to 107.5 bid, ahead of the Calgary, Alta.-based cable operator's release of its latest quarterly results Thursday in tandem with its annual meeting.

On Wednesday, Shaw's chief executive officer, Jim Shaw, said that his company has signed up more than 90,000 customers for its new digital phone service and said it aims to bring that number to 200,000 by the end of the year.

Jim Shaw gave the estimates as he announced the expansion of the company's digital phone service into Vancouver, already its largest cable market. So far it offers the phone service in Calgary, Edmonton, Winnipeg and Victoria.

Merrill Lynch has estimated that the incumbent local phone carrier in western Canada, Telus Communications, will lose over 150,000 lines to Shaw in 2006.

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