Lear softens on production cuts, revised financial outlook; Dura, GM fall with sector weakness

By Sara Rosenberg

New York, Sept. 21 - Lear Corp. was a main story in the secondary loan market on Thursday as levels headed lower on announcement that because of production cuts, previously issued financial guidance needed to be revised lower.

And, with another auto company piling negative news into the market, other names in the sector were pulled down, including General Motors Corp. and the continuously battered Dura Automotive Systems Inc.

Lear's bank debt was noticeably weaker during the session as the company said that its 2006 financial outlook is expected to be negatively impacted by production cuts in North America by major customers, according to a trader.

The company's term loan closed the day at 97¼ bid, 98¼ offered, down from Wednesday's closing levels of 97½ bid, 98½ offered, the trader said.

Lear's revolver dropped as well, with one trader claiming that the paper was down by a quarter of a point at 93 bid, 94 offered and a second trader claiming that the paper was down by half a point at 92½ bid, 93½ offered.

According to the company, the production cuts are expected to negatively impact 2006 net sales by about $300 million and core operating earnings by about 15% compared with prior guidance levels of about $18 billion in net sales and a range of $400 million to $440 million in core operating earnings.

The Southfield, Mich., interior systems company went on to say that while the production cuts will adversely impact both the third and fourth quarters and each of Lear's business segments, about two-thirds of the decline is in the fourth quarter and a disproportionate amount is in the Interior segment.

"We know our customers and our shareholders expect us to operate as efficiently as we can, and we are proactively looking at every aspect of our business for further improvement," said Bob Rossiter, chairman and chief executive officer, in the company news release. "While we remain positive about the longer-term outlook, we are taking additional steps now to ensure that we remain financially strong and even more competitive in the long run."

GM, Dura take a hit

Although Lear had a specific reason for weakening trading levels, the auto sector as a whole has been a main focus for the past couple of sessions as a number of companies have seen their bank debt levels succumb to the heaviness created by an increasing flow of bad news - and on Thursday, General Motors and Dura Automotive were two such names, according to a trader.

General Motors, a Detroit-based automotive company, saw its bank debt fall by about a quarter to a half a point to 93 bid, 93¼ offered, the trader said.

Meanwhile, Dura Automotive, a Rochester Hills, Mich.-based parts maker, saw its second-lien loan drop by 2 points to 93 bid, 94 offered from 95 bid, 96 offered, the trader added.

Dura's second-lien loan specifically has been watched closely since speculation of a potential bankruptcy filing surfaced the other week; and along with the speculation came rumors that the company is having a hard time lining up debtor-in-possession financing on favorable terms.

Late Tuesday, Dura was informed that it was in danger of being delisted from the Nasdaq Global Market, since its stock price has been below $1 per share for at least 30 consecutive days. But, the company has six months to fix the situation.

And then on Wednesday, Dura's ratings were lowered by Moody's Investors Services, including the second-lien ratings, which were dropped to Caa2 from Caa1 by Moody's Investors Service.

Moody's said that the downgrades reflect the company's ongoing operating pressures in the automotive supplier sector which have recently been exacerbated by the announcement of additional production declines in the second half of 2006.

Besides Dura and Lear, other auto companies have come out with negative news this week, which has piled up to create a sector tone in the loan market that has been described as weak and heavy for days now.

For example, Ford Motor Co.'s recently announced restructuring plan that calls for layoffs and plant closures received an unenthusiastic response from market players, and the subsequent downgrade of its ratings only made matters worse.

On Tuesday, Moody's cut Ford Motor Co.'s corporate family and senior unsecured ratings to B3 from B2 and Ford Motor Credit Co.'s senior unsecured rating to B1 from Ba3. The outlook is negative.

In addition, S&P lowered its long-term corporate credit ratings on Ford Motor Co. and Ford Motor Credit Co. to B from B+ on Tuesday. The outlook for the Dearborn, Mich., automotive manufacturer is negative.

Another kink in the works was DaimlerChrysler AG's announcement on Tuesday that its Chrysler Group will cut deliveries to dealers by 90,000 vehicles in the third quarter and by 135,000 for the entire second half of the year.

Although the market was expecting cuts from the Stuttgart, Germany, automotive company due to falling sales of trucks and SUVs, the level of delivery reductions surpassed expectations.

However, it is worth noting that following some slight pressure during the Wednesday session, Goodyear Tire & Rubber Co.'s bank debt managed to hold steady on Thursday with second-lien term loan levels at par 3/8 bid, par 7/8 offered and third-lien term loan levels at 101¼ bid, 101¾ offered, a different trader added.

This steady performance by the Akron, Ohio, tire company's second- and third-lien bank debt came on the heels of a quarter point sell-off during the Wednesday session, the trader added.

Lyondell cuts term loan spread

Switching to the primary, Lyondell Chemical Co. reverse flexed pricing on its $1.775 billion seven-year term loan to Libor plus 175 basis points from Libor plus 200 basis points, according to a market source.

JPMorgan is the lead arranger on the deal. Morgan Stanley is documentation agent.

Lyondell's $2.575 billion credit facility (Ba3/BB) also includes an $800 million five-year revolver.

Proceeds will be used to fund a tender for $849 million of the company's 9 5/8% senior secured notes due May 1, 2007 and to repay a portion of the seven-year term loan used to finance Lyondell's acquisition of Citgo Petroleum Corp.'s 41.25% interest in Lyondell-Citgo Refining LP.

Lyondell is a Houston-based independent, publicly traded chemical company.

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