Stock gyrations largely bypass junk; Freeport fall goes on; lower fuel prices hurt energy names; autos mostly parked

By Paul Deckelman and Paul A. Harris

New York, Dec. 5 - The first week of the last month of the year ended on Friday with further bad news about the economy - a far larger drop in non-farm payrolls in November than virtually anyone had forecast and a bump up in the unemployment rate, both the largest in those respective categories which anyone had seen in years. That caused equity markets to swing wildly - but the high yield market seemed curiously uninvolved with all of that drama, moving definitely lower, but in a sedate fashion, on relatively light volume.

Freeport McMoRan Copper & Gold Inc.'s bonds were seen off by multiple points for a third consecutive session on relatively busy volume for what one trader called a generally "lackluster" day, as investors continued to react to the Phoenix-based metals mining company's mid-week warning that its copper shipments and sales would be drastically off both next year and 2010 due to falling prices for the metal as industrial demand slows.

Freescale Semiconductor Inc.'s bonds were off by several points, a day after the Austin, Tex.-based computer-chip manufacturer elected to pay the interest due on one of its issues in kind - i.e. with additional bonds rather than in cash.

While the chief executive officers of General Motors Corp. and Ford Motor Co. were in the Washington hot seat for a second consecutive day, trying to win over congressional skeptics on the need and desirability of bailing out the ailing Big Three - probably even a tougher sell than trying to move their SUVs when gas pump numbers were north of $4 per gallon - their bonds, and those of captive financing arms GMAC LLC and Ford Motor Credit Co., were seen lower, but on very light volume, pointing to investor wariness about doing anything until the muddled bailout picture becomes clearer.

Energy sector names which, ironically, were sitting pretty just a scant few months ago when those high petroleum prices were laying the automakers low by making their most profitable vehicles - the high-margin gas guzzlers like GM's Hummer - virtually unsalable, were feeling the pain Friday, losing multiple points as prices for crude oil and natural gas continued their relentless slide to levels not seen since the early part of the decade. A major sector loser was Chesapeake Energy Corp.

El Paso plans $500 million

As was true during the pre-Thanksgiving week, no new issues priced during the first week of December.

That could soon change, however, according to a buy-side source.

El Paso Corp. is expected to offer $500 million of 15% five-year notes at a discount.

The paper would likely price with an original issue discount in the context of 90 to yield between 17% and 18%, according to a sell-side source.

No bookrunner names were available late Friday, and the company declined to comment.

On May 22, 2008 El Paso priced $600 million issue of 10-year senior bullet notes (Ba3/BB-) at par to yield 7¼%.

Deutsche Bank Securities, Goldman Sachs & Co. and JP Morgan were joint bookrunners for that deal.

GMAC restructures exchange

On the restructuring front, Friday, GMAC Financial Services announced a two-day extension for the withdrawal and early tender deadlines relative to the massive $38 billion exchange deal involving outstanding issues of GMAC subsidiaries and Residential Capital LLC.

At the same time GMAC announced a restructuring of the exchange terms for its $3.967 billion of outstanding 8% notes due 2031.

In the amended offering, for each $1,000 bond tendered existing noteholders would be exchanged into $800 of 8% senior guaranteed notes, upsized from $500, and $200 of 5% perpetual senior preferred stock, upsized from $150. The $350 million total of upsizsings to the senior guaranteed bonds and perpetual preferred shares are the result of the complete elimination of a $350 tranche of new 8% subordinated notes due 2018.

"The holders of the 2031 paper wanted to be treated like everyone else," said a source familiar with the matter, explaining that in all of the massive restructuring the 2031 noteholders were the only ones which the company was attempting to exchange into subordinated paper.

The alternative cash offer remains unchanged at $600.

The amendment to the GMAC deal announced Friday will likely be the first of many to come, sources said.

Banc of America Securities, Citigroup, Goldman Sachs and JP Morgan are leading the deal.

Restructrings expected this week

More restructuring deals are expected to be announced during the Dec. 8 week, in addition to those already in the market, sources said Friday.

Although no names were proffered, the new offerings are taking shape as the restructuring syndicates measure bondholders' reactions to the deals already in the market, including distressed exchanges from Neff Corp., Realogy Corp., Harrah's Entertainment Inc., Station Casinos, Inc. and Interface, Inc., according to an investment banker.

"Right now bondholders are deciding whether it makes more sense to continue to collect interest, albeit on different terms than they originally signed up for, or just to take over the keys, which is the likely outcome of bankruptcy," the banker said.

Market indicators point lower

The widely followed CDX High Yield 11 index of junk bond performance, which lost 3/8 point on Thursday, was unchanged during Friday's session, a trader said, quoting it at 73 bid, 73 3/8 offered. The KDP High Yield Daily Index meantime fell by 43 basis points to 47.51, while its yield rose by 22 bps to 17.65%.

In the broader market, advancing issues trailed decliners by a better than five-to-four margin. Overall market activity, reflected in dollar volumes, was down 22% from the pace seen in Thursday's session.

A trader said that he thought it was "incredible" that after "some of the worst unemployment news ever, possibly," stocks had roared back. He said that closing "on the upside by triple digits, that would really be a signal." As it was, stocks did in fact close at exalted levels, with the bellwether Dow Jones Industrial Average - which at one point in the session had been down by as much as 258 points, hurt by the jobs data - coming all the way back to finish up by nearly the same amount, gaining 259.18 points, or 3.09%, to finish at 8,635.42. In the broader equity market, the Standard & Poor's 500 and Nasdaq composite index were also winners, S&P up 3.65% on the day and Nasdaq up 4.41%.

Amazingly, those stock gains came on a day when the Labor Department reported that non-farm payrolls declined by a whopping 533,000 jobs, the worst drop in over 30 years and a far worse plunge than the roughly 325,000 figure Wall Street had been expecting. The jobless rate meantime ticked up to 6.7%, its highest levels since 1993, from 6.5% in October. Investors reportedly turned bullish later in the session on the theory that the scary employment/unemployment data made it more likely that the incoming administration will provide a massive stimulus package that could benefit companies.

While all that Sturm und Drang was going on in the equity markets, over in Junkbondland, however, "I still wouldn't consider it an active day," the trader opined.

For instance, he said, Community Health Systems Inc.'s 8 7/8% notes due 2015 - sometimes seen as a market proxy because of the issue's large size, widespread distribution and easy tradability - were trading on a round-lot basis around 78.5 bid - but that was off a trade which had been done hours earlier, a sign, he said of "just how inactive the overall market was." Later on in that session, a market source at another desk pegged the bonds at 79.25, still down ¾ point from Thursday's close at 80, but on only about $5 million of the bonds traded.

"The trend we were seeing today was that the more active bonds were clearly down - but I don't think there were a lot of names trading." Instead, he said, it was "a lackluster" session, "except for some newsworthy, issue-specific situations. There was decent volume of specific names, but in total, it was not an active trading market."

Junk, a second trader said, "tried to bounce back a little with the equity market, as it shrugged off the 500,000-plus job cuts."

Overall, he said, "it was pretty quiet and sloppy in the beginning, then, as the equity market took hold here, we stabilized. We didn't get killed - except for a couple of those names there in the energy sector."

Freeport fall-off continues

"It's just not a real active day," the first trader said. "The last two or three days have been more news-specific in their activity, ever since Freeport [McMoRan] came out with their guidance, they've been in vogue, activitywise. They were the most active bond today - and they've gotten hit again."

He saw the company's 8 3/8% notes due 2017 at 63.75 bid, versus 65.5 on Thursday, on volume of around $24-25 million, which "on an inactive day, was significant volume."

He said the same was true of its 8¼% notes due 2015, which were at 66.5 bid, 69.5 offered, down 3 points on the day with $22 million traded.

They were the most active issues in a relatively quiet Friday junk session.

Another trader saw the '17s down 2 points at 64 bid, 65 offered, and the '15s also down a deuce at 66.5 bid, 67.5 offered.

The company warned on Wednesday that because of declining prices for two of its key products, copper and molybdenum, it was lowering its copper output for 2009 and 2010, cutting its sales estimates and suspending its equity dividend as a cash-saving measure. Copper peaked at more than $4 per pound in July, but prices have since tumbled down to around the $1.50 level, as the slowing economy has cut industrial demand for the metal, particularly for copper products used in the building industry such as copper wiring and pipes.

Freeport said that it will slash its copper output by about 200 million pounds, or 5%, this upcoming year, and by an even steeper 500 million pounds, or 11%, in 2010. It accordingly revised downward its estimated copper sales by 4.7% in 2009 and 11% in 2010. The lower copper production - which will mostly come in its North American mining operations - will cause it to cut its estimated capital expenditures by about half to $1.1 billion. Suspending the annual $2 dividend on its common will save the company around $750 million.

Chesapeake churns as crude crumbles

Recession-impacted commodity prices are doing damage in other sectors as well, notably energy, which saw crude oil fall to intraday lows not seen in four years and natural gas also on the slide. Light sweet crude for January delivery fell as low as $40.50 per barrel Friday on the New York Mercantile Exchange, its lowest since December 2004, before closing at $40.81, down $2.86, or 6.5%. Natural gas for January delivery meantime slid by 27.8 cents, or 4.6% to $5.739 per million Btu on the Nymex, having earlier gone as low as $5.712 per million Btu, its lowest price since September of last year.

Against that somber backdrop, a trader saw Chesapeake Energy's bonds sharply lower, in line with a plunge in its shares amid plummeting energy prices, which he said "fell off the map."

He saw the Oklahoma City-based Number-Two independent U.S. natural gas producer's 6 7/8% notes due 2020 fall to 50 bid, 52 offered from Thursday's close at 56 bid, 57 offered, and said the bonds had fallen "10 points over the past two days. Wow."

He also saw its 7 5/8% notes due 2013 at 73 bid, 75 offered, down 5 points on the session, on top of another 3 points or so on Thursday, noting that "they got hit hard - and are at a 16% yield."

At another desk, a market source called Chesapeake's 6.50% notes due 2017 down nearly 6 points on the day at around the 57 level, while its 6¼% notes due 2018 ended at 56 bid, down more than 5 points.

Chesapeake's New York Stock Exchange-traded shares swooned by as much as 16.8% during the session before coming off their lows to end at $11.32, down 52 cents, or 4.39%. Volume of 67.6 million shares was double the norm. Besides sliding energy prices, equity investors were said to be upset by the company's plans, announced the previous week, to issue as many as 50 million shares "in connection with the acquisition of assets, businesses or securities of other companies," fearing their own holdings will suffer massive dilution.

Chesapeake on Friday afternoon announced that it will hold a conference call on Monday morning on which company executives will outline the company's updated financial and operational plans through 2010 "that will include a reduced capital expenditure budget and details of Chesapeake's plans for building substantial cash resources over the next two years." The planned spending cuts are the fourth round of such reductions since September, as Chesapeake - which has recently sold off some of its reserves - tries to shore up its liquidity.

Elsewhere in the junk energy sector, the trader - who nostalgically sighed that "energy used to be such an easy, mellow sector" - saw Midland, Tex.-based oil and gas E&P operator Clayton Williams Energy Inc.'s 7¾% notes due 2013 down 8 points at 50 bid, 51 offered.

A market source saw other energy credits lower as well, including Plains Exploration and Production Co., whose 7.625% notes due 2018 lost 3 points to end at 61 bid; Range Resources Corp., whose 7½% notes due 2017 were down 1½ points to the 77 range and Denbury Resources Inc., whose 7½% notes due 2015 were 3 point losers, falling to 64 bid. Kinder Morgan Energy Partners LP's 5.35% notes due 2011 dropped by nearly 6 points to 84 bid.

Freescale toggle move knocks notes down

A trader saw Freescale Semiconductor's 9 1/8% toggle notes due 2014 open at 14 bid, 15 offered, way down from Thursday's closing level at 21 bid, 23 offered - before the news that it would pay the interest due Dec. 15 on those PIK bonds with new paper rather than cash. Later, he said, the bonds got back up to 18 bid, 20 offered, to close "down 2 points, net-net, but initially down as much as 6 points."

He saw Freescale's 10 1/8% notes due 2016 benchmark bond down 4 points at 24.5 bid, 25.5 offered.

Another trader saw Freescale's 8 7/8% notes due 2014 down 3 points on the day at 32.5 bid, although another market source saw them down 2.5 points to get to that level.

Out of that same high-tech sector, NXP BV's 9½% notes due 2015 were down 3 points at 15 bid, 16 offered. Celestica Inc.'s 7 7/8% notes due 2011 were down 3 points at 87.

Autos off as bailout begging continues

Even as the heads of General Motors, Ford and competitor Chrysler LLC renewed their pleading for a government bailout for the staggering Detroit carmakers, this time before the House Financial Services Committee, sector bonds were mostly lower.

A trader saw GM's benchmark 8 3/8% bonds due 2033 down 2 or 3 points at 17 bid, down from levels around 20 on Thursday.

Another trader saw those bonds in a "17ish' context, and said they "may have been quoted even lower" but said there was not much trading going on.

He saw GM's 49%-owned financial arm GMAC LLC's 8% notes due 2031"up maybe a point" at 27 bid, 28 offered, and said "a decent amount" had traded.

At another desk, the GM long bonds were seen down 2 points at 16 bid, 18 offered.

Auto parts, the trader said, "did nothing."

The first trader noted that he had only seen about $1 million of the normally actively traded benchmark issue changing hands, and saw just $3 million of Ford's 7.45% bonds due 2031, which he called 'very light volume." The bonds were off ¾ point at 23.5. Ford Credit's 7 3/8% notes coming due next October were off ½ point at 69.

The lack of much GM and Ford volume, he said "is indicative of the overall market, and also of everyone not having any clear indication of which way the [bailout] hearings would conclude.

"A lot of people were on the sidelines. They're waiting to see what the outcome of these hearings will be, versus jumping the gun."

As was the case on Thursday, CEO's Rick Wagoner of GM, Alan Mulally of Ford and Robert Nardelli of Chrysler, along with the president of the United Auto Workers union, Ron Gettelfinger, testified before a panel of legislators who held varying views on the wisdom of a bailout. While some, primarily among the Democratic leadership, say a bailout is needed to prevent any one of the Big Three from going bankrupt and dragging suppliers and ultimately, its competitors down with it, other lawmakers insist a bailout would be rewarding the carmakers for decades of bad choices and suggest that a bankruptcy might be what's needed to fully overhaul a broken business model.

Even among those favoring a bailout, there is division over whether the $34 billion the carmakers are seeking should come from the Treasury's $700 billion troubled-asset fund, or from a separate fund established to encourage the carmakers to develop more fuel-efficient vehicles.

Congressional leaders were reported meeting late Friday evening to discuss a possible compromise, which would give the struggling carmakers enough money to tide them over into the beginning of January, giving the lawmakers more time to study various ways that a bailout - with or without a reorganization - might be structured. Such a plan would also defer the larger bailout question until the incoming Democratic administration takes power - and until the hand of Democratic leaders in both the House and Senate are strengthened with larger majorities.

A few gainers seen

Amid the mostly down market on Friday, a few upsiders were standing out.

A trader called Domtar Corp.'s 7 7/8% notes due 2011 "certainly the upward standout of the day," at 85 bid, up 4½ points.

He also saw Claire's Stores Inc.'s bonds "active today," with its 10½% notes due 2017 higher by ½ point at 13.875 bid, on $11 million traded. And beleaguered consumer products company Spectrum Brands Inc.'s

7 3/8% notes due 2015 were seen 4 points better on the day at 20 bid.

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