Ford, GM, Chrysler fall on credit worries; Clear Channel may offer leverage; BCE closer to completion

By Sara Rosenberg

New York, June 20 - Ford Motor Co., General Motors Corp. and Chrysler Financial Services LLC saw their term loan levels slide after Ford announced production cuts and lowered its forecast, and the companies were put on review for possible rating downgrades.

In other news, Clear Channel Communications Inc. is rumored to possibly be offering some leverage to lenders who commit to the term loan B debt that's up for sale as a way to get momentum started on the deal.

Also, BCE Inc.'s massive buyout took a step forward on Friday as a Canadian court ruled that the transaction can proceed.

It was all about the auto sector in trading on Friday, with Ford, General Motors and Chrysler Financial all experiencing losses on Ford's latest company update and negative rating outlooks, according to traders.

Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 82 bid, 83 offered, down from 84 bid, 85 offered, traders said.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 89 bid, 90 offered, down from 90 bid, 91 offered, traders continued.

And Chrysler Financial Services, a provider of financial services for vehicles in the Nafta region, saw its first-lien term loan quoted at 87½ bid, 88½ offered, down from 89 bid, 90 offered, traders added.

Auto production forecast eyed

On Friday morning, Ford announced that it was further reducing North American large truck and SUV production for the remainder of 2008, while adding more small cars, crossovers and fuel-efficient powertrains.

The company now expects U.S. industry volume in 2008, including medium and heavy vehicles, to be between 14.7 million and 15.2 million units, compared with the previous assumption of 15 million to 15.4 million units.

In the third quarter, Ford plans to produce 475,000 vehicles, a reduction of 50,000 units from previously announced plans and a decline of 25% compared with the 2007 third quarter.

In the fourth quarter, Ford plans to produce 550,000 to 590,000 units, a reduction of 40,000 units from previously announced plans and a decline of 8% to 14% compared with the 2007 fourth quarter.

In addition, the company said that 2008 automotive results will be worse than 2007, cash outflows will be greater than previous guidance and, unless the economy improves, it will be difficult to break even companywide on a pre-tax basis in 2009, excluding special items.

Also, the company said that Ford Motor Credit Co. now will incur a pre-tax loss this year, excluding any potential payment related to Ford's profit maintenance agreement, primarily due to further weakness in large truck and SUV auction values. Ford Credit no longer is planning a distribution payment to Ford in 2008.

"As gasoline prices average more than $4 a gallon and consumers worry about the weak U.S. economy, we see June industry-wide auto sales slowing further and demand for large trucks and SUVs at one of the lowest levels in decades," said Alan Mulally, Ford president and chief executive officer, in a news release.

"Ford has taken decisive action to respond to this accelerating shift in customer demand away from large trucks and SUVs to smaller cars and crossovers, and we will continue to act swiftly moving forward," Mulally added in the release.

Following the Ford news, Standard & Poor's placed the corporate credit ratings of Ford, General Motors and Chrysler LLC (Chrysler Auto) on CreditWatch with negative implications so that the financial damage being inflicted by deteriorating U.S. industry conditions, primarily as a result of high gasoline prices, can be evaluated.

Included in the CreditWatch placement are the finance units Ford Motor Credit Co. and DaimlerChrysler Financial Services Americas LLC (Chrysler Financial), as well as General Motors' 49%-owned finance affiliate GMAC LLC.

"We have renewed concerns about all three automakers' future cash outflows in light of the prospects for U.S. sales for the rest of 2008 and into 2009," said S&P credit analyst Robert Schulz in the rating release.

According to S&P, the erosion of demand for SUVs and pickups has been particularly troubling as this issue has been escalating because of rising gas prices and consumer preferences for smaller vehicles.

On top of weak sales and adverse product mix shifts, the list of challenges that S&P believes the automakers are facing includes less receptive capital markets, higher costs for steel and other raw materials, lower residual values that hurt profitability at the finance units and reduce consumers' trade-in power, and increasing cash needs for restructuring efforts

"We believe all three companies currently have ample liquidity for at least the rest of 2008 as measured by cash balances, available bank facilities, and in some cases unencumbered assets. But we now also believe deteriorating industry fundamentals could reduce liquidity to undesirable levels by the second half of 2009," S&P added.

Moody's Investors Service also got in on the action on Friday, changing Ford's and Chrysler LLC's outlook to negative from stable, reflecting the same concerns as S&P of falling U.S. vehicle demand, and high fuel costs driving U.S. consumers away from light trucks and SUVs and toward more fuel efficient vehicles.

Regarding Ford, Bruce Clark, senior vice president with Moody's, said in the rating release: "Maintaining adequate liquidity will be one of the most critical challenges Ford faces as it attempts to reshape its U.S. product profile and manufacturing base during the next two years."

"Ford is going to burn a considerable amount of cash until it adequately expands its fleet of fuel efficient cars and convinces consumers that these vehicles offer competitive value relative to Japanese product. The pace of cash consumption will also remain high until Ford begins to harvest the health care cost savings of its new UAW contract in 2010," Clark added.

As for Chrysler, Moody's said that the company's liquidity profile could be stressed by late 2009 or early 2010.

"As a result of the challenges that Chrysler may face in contending with the ongoing shift in demand away from trucks and SUVs, the company will likely face large cash requirements during 2008 and 2009 that will considerably narrow its liquidity position relative to earlier expectations. In the absence of any material near-term source of additional liquidity that can help the company better address growing cash requirements its B3 rating could be placed on review for possible downgrade or lowered," Moody's added.

Clear Channel may give leverage

Over in the primary, Clear Channel is heard to be considering offering leverage as a way to sell off some of its term loan B and get anchor orders "and then the banks will all help each other out," a market source told Prospect News on Friday.

Under this type of syndication, the actual commitment size is less than the amount of the order size that's put in the book. For example, if a lender commits $150 million and the banks give four turns of leverage, that $150 million turns into $600 million, the source explained.

"It will all be via total return swap programs. They'll probably raise $3 billion to $4 billion that way," the source continued.

The source went on to say that it probably won't be the typical cash guys coming in toward the deal at first.

"I'm sure cash guys will come in but this will be how they get the ball rolling," the source added.

On Tuesday, Clear Channel held a bank meeting to officially launch up to $3 billion of its $10.7 billion 71/2-year term loan B (B) that is priced at Libor plus 365 basis points with a step down to Libor plus 340 bps at less than 7:1 total leverage.

The term loan B debt is being offered to investors at an original issue discount in the 90 to 91 area.

How much of the term loan B is actually sold in the end will end up depending on market demand.

Commitments from lenders are due on July 2.

Citigroup, Deutsche Bank and Morgan Stanley are the joint lead arrangers and bookrunners on the deal, with Citi the administrative agent, Deutsche and Morgan Stanley the syndication agents, and Credit Suisse, RBS and Wachovia the co-documentation agents.

Clear Channel's $16.77 billion senior secured credit facility also includes a $690 million six-year receivables-based revolver, a $1.425 billion six-year term loan A (B), a $2 billion six-year revolver (B) that is split into $1.85 billion in U.S. dollars and $150 million available in alternate currencies, a $705.6 million 71/2-year asset sale term loan C (B) and a $1.25 billion 71/2-year delayed-draw term loan (B).

As of now, the only debt that is formally being syndicated is the piece of term loan B.

Pricing on the receivables-based revolver is initially set at Libor plus 240 bps, but it can range from Libor plus 215 bps to 240 bps, depending on leverage. This tranche has a 37.5 bps commitment fee.

Initial pricing on the term loan A and the revolver is Libor plus 340 bps, but it can range from Libor plus 290 bps to 340 bps, depending on leverage. The revolver has a 50 bps commitment fee.

And, pricing on the term loan C and the delayed-draw term loan is Libor plus 365 bps with a step down to Libor plus 340 bps at less than 7:1 total leverage. The delayed-draw term loan has a 182.5 bps commitment fee.

Originally, it was expected that the receivables-based revolver could be sized at $1 billion and that the term loan A could be sized at $1.115 billion, based on filings with the Securities and Exchange Commission.

However, those filings explained that if availability under the receivables-based revolver is less than $750 million due to borrowing base limitations, the term loan A would be increased by the amount of such shortfall and the maximum availability under the receivables facility will be reduced by a corresponding amount.

Covenants under the facility include a maximum consolidated senior secured net debt to adjusted EBITDA ratio requirement.

Proceeds will be used to help fund the buyout of Clear Channel by Bain Capital Partners LLC and Thomas H. Lee Partners LP for $36.00 in cash or stock per share, in a transaction valued at about $17.9 billion. The purchase price was lowered from $39.20 per share in connection with a settlement agreement that enabled the buyout to progress, and entailed putting all debt and equity financing in escrow.

Of the total delayed-draw funds, $750 million can be used to purchase or repay Clear Channel's outstanding 7.65% senior notes due 2010 and the remainder will be available to purchase or repay Clear Channel's outstanding 4¼% senior notes due 2009.

Other buyout financing is coming from $980 million of 10¾% senior unsecured notes, $1.33 billion of 11% cash pay/11¾% PIK senior unsecured toggle notes and equity.

The acquisition of Clear Channel is expected to close by the end of the third quarter, subject to shareholder approval, which will be sought at a meeting on July 24.

Clear Channel is a San Antonio media and entertainment company specializing in "gone from home" entertainment and information services.

BCE overcomes hurdle

The buyout of BCE is closing in on getting done as the Supreme Court of Canada overturned a previous ruling that barred the transaction from taking place, according to sources.

Holding up the buyout was Bell Canada debenture holders, who claimed that the BCE board had failed to consider the interests of the debenture holders and instead had acted on the assumption that they had an overriding duty to shareholders, which was wrong in law.

A main gripe of the debenture holders was that Bell Canada is forced to guarantee $34 billion in loans that the purchaser is incurring.

Last summer, BCE agreed to be acquired by Teachers Private Capital, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC for an offer price of C$42.75 per common share and all preferred shares at various prices ranging from C$25.25 to C$25.87.

The all-cash deal is valued at C$51.7 billion, including C$16.9 billion of debt, preferred equity and minority interests.

Funding for the transaction is expected to come from Citigroup, Deutsche Bank, RBS Securities and TD Securities in the form of a C$23.05 billion credit facility and a C$11.3 billion bridge loan to back high-yield offerings.

The credit facility, as outlined under the original commitment letter, consists of a C$2 billion six-year revolver, a C$4.2 billion six-year term loan A, a C$16.5 billion seven-year term loan B and a C$350 million one-year delayed-draw term loan.

BCE is a Montreal-based communications company that provides telephone, internet, television and information services.

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