Investors react positively to Ford; Capmark gains despite weak numbers; Rite Aid notes better

By Stephanie N. Rotondo

Portland, Ore., April 24 - Ford Motor Co. released its first-quarter results Friday and investors reacted favorably, despite the large loss.

In fact, the company's bonds - which had begun to trade relatively actively ahead of the numbers - moved up at least 2 points, while the bank debt gained about 4 points. One trader speculated that the moves were due to the company's lower cash burn.

In other earnings news, Capmark Financial Group Inc. also reported. And, despite a $1.1 billion net loss and warnings of potential bankruptcy, the bonds were seen moving higher as well.

Rite Aid Corp.'s notes have been rather popular of late and continued to be so on Friday. Traders saw the debt trading actively and better, but none were able to explain the recent momentum.

Investors react well to Ford

Ford Motor's debt structure gained significant ground in relatively active trading after the company released well-received earnings.

In the bonds, a trader said the benchmark 7.45% notes due 2031 opened the day around 43, only to hit a high of "45 and change" post-numbers. He said about $20 million traded.

The trader also saw the 5.05% notes due 2009 linked to Ford Motor Credit Co. at around 95, with about $25 million changing hands.

Another source called the 6½% notes due 2018 better by 2.5 points at 39.5 bid, 40.5 offered. Yet another source deemed the 7% notes due 2013 up more than 4 points at 74.5 bid.

The Dearborn, Mich.-based automotive company's term loan was quoted at 62 bid, 63 offered, up from Thursday's levels of 56¾ bid, 57¾ offered, a trader said.

First thing Friday morning, the paper had been quoted around 57½ bid, 58 offered and then it just kept flying higher, the trader remarked. He noted that many market players felt the company's earnings release, and ensuing conference call, were full of positives.

"Everyone [was] very surprised by their cash burn, or lack thereof. Burned only $3.7 billion" in automotive operating-related cash flow during the first quarter, the trader added. "Estimates were for like $6 or $7 billion."

Overall, Ford's automotive gross cash increased by $7.9 billion during the first quarter, primarily reflecting the draw of $10.1 billion under its revolving credit facility and the net impact of $2 billion related to the conversion of assets in the temporary asset account set aside for the voluntary employees' beneficiary association health care trust into a new Ford note.

The company finished the quarter with $21.3 billion in automotive gross cash and reiterated that, based on current planning assumptions, it does not expect to seek a bridge loan from the U.S. government.

In addition, based on current planning assumptions, the company said it remains on track to meet or beat its financial targets, including the target for its overall and North American automotive pre-tax results to be breakeven or better in 2011, excluding special items.

"Clearly, these continue to be challenging days for the global auto industry. I remain encouraged by the progress Ford is making to allow us to operate through the downturn and emerge as a lean, globally integrated automaker poised for profitable growth when the economy rebounds," said Alan Mulally, president and chief executive officer, in a news release.

Also on Friday, Ford said that for the first quarter it had a net loss of $1.4 billion, or $0.60 per share, compared with net income of $70 million, or $0.03 per share, in the first quarter of 2008.

Revenue for the quarter, excluding special items, was $24.8 billion, down from $39.2 billion a year ago.

"Our results in the first quarter reflected the extremely difficult business environment and weak demand for autos around the world," Mulally remarked in the release.

"Despite the challenges, Ford made strong progress on our transformation plan by gaining share with strong new products, slowing operating-related cash outflows, reducing outstanding debt, lowering our structural costs and reaching new agreements with the UAW," Mulally added.

Capmark gains despite weak numbers

Capmark Financial Group also put out a quarterly report Friday but the news was not positive. The Horsham, Pa.-based company posted a loss of $1.1 billion for the fourth quarter of 2008 and warned a bankruptcy filing could be in its future.

Still, the financial services provider's bonds were seen moving up. One trader placed the 6.3% notes due 2017 at "23 and change," the floating-rate notes due 2010 at "38 and change" and the 5 7/8% notes due 2012 at 26.25.

Another market source said the bonds were up 2 to 3 points on the day, the floaters at 38 bid, 39 offered, the 5 7/8% notes at 24 bid, 25 offered and the 6.3% notes at 23 bid, 24 offered.

Capmark said its bottom line was affected by the economic downturn, which resulted in pre-tax valuation losses on loans and other investments of $741.3 million. That compared with pre-tax valuation losses of $100.4 million in the same quarter of 2007.

For the year, Capmark reported net loss of $1.4 billion, versus a net income of $280.3 million in 2007.

Furthermore, the company said that if it could not remedy the situation pertaining to its bridge loan and senior credit facilities, a Chapter 11 filing could be imminent.

"Unless the lenders under the senior credit facility and bridge loan agreement continue to waive or eliminate the leverage ratio covenant beyond May 8, 2009, further extend the maturity of the bridge loan agreement and otherwise restructure the senior credit facility and bridge loan agreement, upon expiration of the waivers Capmark will be in default under these agreements and the majority lenders under such agreements can immediately declare all loans due and payable," the company said in a press release.

"Any such acceleration of the maturity of the debt obligations would permit Capmark's senior noteholders and certain other lenders and contractual counterparties to terminate and/or accelerate the maturity of obligations due under other financing instruments and agreements, including the senior notes...If Capmark has not otherwise been able to recapitalize, refinance, or raise additional liquidity by selling some or all of its assets or through some other form of restructuring, it will have to seek to reorganize under Chapter 11 of the United States Bankruptcy Code," the release said.

Elsewhere in the financial sphere, American International Group Inc.'s 6.9% notes due 2017 traded up to 40.5 bid, 41 offered, a trader said.

Rite Aid bonds, equity climb

Rite Aid's bonds continued to trade actively and better, though traders were still at a loss to explain the momentum.

A trader said the 9½% notes due 2017 closed around 45, while the 7½% notes due 2017 moved up to 72 bid, 73 offered. He said about $15 million of each issue traded.

Another trader placed the 9½% notes at 46, up from 40 bid, 42 offered.

Though bond traders had no explanation for the day's movements, over in the equity, there were some gains as well. The Camp Hill, Pa.-based drugstore chain's stock (NYSE: RAD) at one point in the session ran up over $1 for the first time in several months. But by the end of the day, the shares had settled back in, closing up 21 cents, or 31.34%, to $0.88. Trading was also heavier than usual.

However, there was no news to explain the stock jump either. The company is expected to release April sales on April 30.

Broad market closes on good tone

In the rest of distressed land, Freeport-McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017 once again hit the top trading spot, with about $60 million of the debt moving around. A trader said the bonds were up 1 to 2 points at 97.5 bid, 98 offered.

MGM Mirage's 6 5/8% notes due 2015 traded around 48, a gain of about a point. The slight increase came as the company's owner, Kirk Kerkorian, expressed interest in selling off the Mirage, as he believes it would fetch a higher price than the company's Michigan property.

Sara Rosenberg contributed to this article.

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