Ford jumps on debt restructuring news; MGM Mirage crushed further; new Louisiana Pacific bonds move up

By Paul Deckelman and Paul A. Harris

New York, March 4 - Ford Motor Co.'s bonds pulled into the passing lane for an upside ride near the close of Wednesday's session in response to the Dearborn, Mich.-based automaker's late-afternoon announcement of its plan to take out as much as $10.4 billion of its more than $25 billion of debt by offering those debt holders cash or stock.

That sudden surge overshadowed the other major story of the day in Junkbondland - the continued slide in the bonds of MGM Mirage, which disclosed after the close Tuesday in a regulatory filing that it expects to fall out of compliance with its credit facility financial covenants.

Elsewhere, expectations that China will ramp up its stimulus effort translated into sharp gains in the bonds and shares of such commodity producers as Freeport-McMoRan Copper & Gold Inc.

There was no activity in the primary market Wednesday. Among the new issues which have recently priced, Louisiana Pacific Corp.'s split-rated offering of bonds and warrants, which priced at what one trader termed a ridiculously cheap level on Tuesday, had moved up about 4 or 5 points, with room for considerable further upside. Plains Exploration & Development Co.'s new issue was seen mostly trading around the discounted price at which the deal came to market on Tuesday

Market indicators down again

A trader saw the widely followed CDX High Yield 11 index of junk bond performance - which had lost ¾ point on Tuesday -- again easier on Wednesday, quoting it down another 1/8 point to 68 5/8 bid, 69 1/8 offered.

The KDP High Yield Daily Index meantime fell by 50 basis points to 50.25, while its yield widened by 18 bps to 14.40%.

In the broader market, advancing issues again trailed decliners, by a three-to-two margin.

Overall market activity, measured by dollar-volume totals, rose by 23% from the levels seen in Tuesday's session.

A trader said that there was "pretty good activity. We saw some autos seem to bounce a little and catch a bid."

Noting that in the previous several sessions, things had been "mushy, to say the least," he declared that "overall, I would say the market is better by a good half-point across the board."

He said that gaming in general and MGM Mirage in particular, "continue to gain a lot of focus."

Another trader said that "there definitely was an initial selling" trend - he declined to call it a frenzy, because it was "not widespread. There was definitely selective selling right out of the chute [Wednesday] morning, but there was definitely a rebound as the day went on and as the gains in equities really stuck."

Spurred on by investor hopes that the United States and China are each taking convincing action to restart their sputtering economies, which helped producers of key commodities such as oil and metals as well as bellwether industrial companies like Alcoa Inc. and Caterpillar Inc., the Dow Jones Industrial Average broke its five-second skid and turned up by 149.82 points, or 2.23%, to end at 6,875.84. The wider Standard & Poor's 500 index rose 2.38%, while the still-wider Nasdaq composite index gained 2.48%

The trader said that evidence of that junk market rebound from initial weakness was apparent in the "roller-coaster ride" taken by market barometer Community Health Systems Inc.

He saw the Franklin, Tenn.-based hospital operator's $3 billion issue of 8 7/8% notes due 2015 "getting hit today," going home at a round-lot level of 91.5 bid, versus 93 on Tuesday, down 1½ points on $30 million traded, "which is an uptick in volume for this bond."

He noted that earlier in the session, the bonds had traded as low as 90.25.

The other issue seen by some as a junk barometer, First Data Corp.'s 9 7/8% notes due 2015, were down ¾ point on the day, in line with overall market easiness, but on volume of only $1 million, with the trader noting that is a minuscule figure for a $2 billion bond offering, meaning Community Health Systems "is definitely a more accurate market barometer."

Ford bonds step on the gas

One of the big movers on the day was Ford Motor Co., although for most of the session that did not seem to be the case.

A trader saw Ford's 7.45% bonds due 2031 "a little better" at 18 bid, 20 offered, which he described as "right in their range, maybe a half-point better than [Tuesday]. But those bonds accelerated dramatically after Ford's late-afternoon announcement that it plans to cut up to $10.4 billion from its more than $25 billion of debt by offering debtholders cash and stock. Another trader - who had seen the bonds up ½ point before the announcement - quoting late levels around 25, which he called up around 5 or 6 points on the day.

Ford said that it plans to eliminate up to $10.4 billion of its debt by offering the holders of that debt cash and stock.

The Number-Two domestic car producer - the lone member of Detroit's "Big Three" to not ask for billions in bailout cash from the federal government so far - said that it will offer to convert into company stock up to $4.9 billion in convertible debt issued in 2006, and will offer to pay up to $1.3 billion in cash from its Ford Motor Credit Co. financial arm for up to another $4.2 billion in bonds. The company set a purchase price for those bonds of 30 cents on the dollar, well up from the roughly 20 cents at which those bonds have been trading.

Ford plans to also swap $500 million in cash for up to $1.3 billion in term loans through an auction process, and will defer dividend payments on its 6½% preferred securities starting in April, to conserve cash (see related story elsewhere in this issue).

While Ford bondholders seem to like the idea, the ratings agencies were mostly critical, with both Standard & Poor's and Moody's Investors Service cutting Ford's ratings in response to the announcement. Each said that it considers the exchange offer as outlined by Ford to be a distressed exchange, tantamount to a default.

Fitch Ratings took a slightly more sanguine view, saying it considers the exchange to be "voluntary" rather than "coercive," and that when the exchange is completed, Fitch will view it as a slight positive for Ford's credit profile. It kept Ford's ratings where they were.

GM, Delphi seen little moved

Also in the automotive arena, a trader said that General Motors Corp.'s 8 3/8% bonds due 2033 "didn't see much activity," quoting them unchanged at around 12-13. Another had them at 12 bid, 24 offered, likewise unchanged.

One of the traders saw little or no impact on Delphi Corp.'s bonds from the announcement that former corporate parent GM will purchase the bankrupt Delphi's steering business and will speed up payments to its erstwhile problem child to bolster the latter's liquidity picture.

He said that the Troy, Mich.-based auto parts maker's bonds were around ½ bid to 2 offered, "still where it was. Maybe there were some trades - but we're not seeing any."

Freeport-McMoRan feels better

Apart from Ford, another upsider on the session was Phoenix-based metals producer Freeport-McMoRan, which a trader called "the most popular active name."

Its 8 3/8% notes due 2017 gained 2 points to finish at 85 bid, on volume of $28 million, while its floating-rate notes due 2015 pushed up to 71 from 69.5 previously, also on $28 million traded.

Freeport's 8¼% notes due 2015 gained 1½ points to end at 86.5 bid, on $7 million traded.

The trader also noted that the company's stock "had huge volume, and was up points," finishing up $3.80, or 13.38%, at $32.31. New York Stock Exchange volume of 45 million shares was nearly twice the norm.

Freeport, and other commodity producers, jumped on market expectations that China will announce new stimulus measures on Thursday, which would boost demand for industrial materials such as copper, Freeport's principal product.

MGM Mirage is royal flushed

On the downside, a trader said that MGM Mirage's bonds were "still going on a ride lower," as the market reacted to the latest troubles of the Las Vegas-based gaming giant - its disclosure in a Securities and Exchange Commission filing after the close of trading on Tuesday that it will be delayed in submitting its 10-K report on the year just completed - and its warning that it could very well fall out of compliance with the financial covenants in its credit facility, given deteriorating gaming industry conditions .

The trader saw the company's 8 3/8% notes due 2011 at 10 bid, 11 offered, while the bonds on the longer end, like the 7½% notes due 2016 were all around a 30-32 context, which he called "down three, four, five points."

The bonds maturing this year were really down by 10 or a dozen points, or even more, with the 6% notes coming due on Oct. 1 at 46 bid, 48 offered, versus prior levels near 60. The 6½% notes due on July 1, issued by the former Mandalay Resort Group, now an MGM subsidiary, fell to 53 bid, 56 offered from prior levels in the mid-60s.

MGM, the trader said, "had an awful lot of trading - and it was pretty ugly." He added that "a lot of people were getting crapped out,"

Another saw the company's bonds as "both the most active, and the biggest decliners. They got crushed."

He saw the 6½% July 1 bonds last trading on a round-lot basis at 54.5, for a 221% yield to maturity, "essentially saying that these bonds will not mature". He had seen them trading at 60 the session before. Volume was $20 million.

But the busiest MGM Mirage issue was the 6% Oct. 1 bonds at 47.5, or a 200% yield to maturity, well down from 58 on Tuesday, with some $70 million changing hands.

MGM was "extremely active, and definitely the largest decliner in high yield. The consensus in the market seems to be that with the way the bonds are trading, the company will have to restructure them."

When market players sit down before their screens on Thursday, there will be even more bad MGM Mirage news to digest, as Bloomberg reported Wednesday night that MGM Mirage and Dubai World's talks with Deutsche Bank AG for a $1.2 billion loan to complete the joint venture partners' ambitious Las Vegas CityCenter project have collapsed after a disagreement over terms.

The story said its information came from several anonymous sources "with knowledge of the matter."

They said that in return for the loan, Deutsche Bank was seeking equity and debt stakes in the $11.2 billion development, which is currently stalled by financing difficulties.

Bloomberg reported that MGM Mirage and Dubai World are now holding talks on replacement funding with other, unidentified parties.

Missed coupon has little Station impact

Also in that gaming sector, Wynn Las Vegas LLC's 6 5/8% notes due 2014 dipped by a deuce to 65 bid in round-lot trading, on hefty volume of $32 million.

And a trader saw little movement in Station Casinos Inc.'s bonds on the news that the Las Vegas-based operator of locally-oriented casinos had chosen not to make the March 1 coupon payment on its 6 7/8% subordinated notes due 2016. He saw its senior bonds, like the 6% notes due 2012 and the 7 ¾% notes due 2016 at 30 bid, 32 offered, "about where they've been, with not much trading, just quotes," while its other bonds languished at 3-4.

Another trader called Station's 6½% subordinated notes due 2014 unchanged at 4.5 bid.

Louisiana Pacific leaps upward

Among the recently priced issues, a trader saw the new Louisiana Pacific 13% notes due 2017 at 78.5 bid, 79.5 offered, well up from the 75 level at which the Nashville-based building products company had priced its $375 million of new bonds on Tuesday, in combination with equity warrants. The company had said it would price the notes at that level to boost the yield on the deal to 19.24%.

Another trader said that a gain of several points is really not surprising; given the level at which those bond-and warrant units priced, "I would think they would move up."

He was, however surprised at "how cheap they came - I cannot believe it."

Noting the fact that the company's issue actually carries a split rating of Ba3 from Moody's Investors Service and BBB- from Standard & Poor's, he opined that "If the company need to issue these bonds that desperately" that it had to price them so low to begin with, "at these rates, at these levels, then I wouldn't think that they are deserving of a 5-B rating. If they are truly credit-worthy of a 5-B, they should not have to come at 19.24%."

He also noted that the company's shares are trading at just $1.30, with a market capitalization of $135 million, but the ratings are still in 5-B territory, so "it shouldn't surprise us that the ratings agencies are off - and it's not the first time."

New Plains bonds come off lows

A trader saw the new Plains Exploration 10% notes due 2016 "hovering around issue," quoting them at 92.25 bid, 92.5 offered, which he said was essentially "wrapped around" the 92.373 price at which the Houston-based independent energy exploration and production company had priced its downsized $365 million issue on Tuesday to yield 11.625%.

At another desk, a trader saw the bonds at 91.75 bid, 92.25 offered.

Yet another trader saw them going out at 92.5 bid, 93 offered, up slightly from their issue price, but said that earlier in the session, the bonds had opened as low as 91.5 bid, 92 offered, which he said was in line with the overall market's "initial very weak opening, but by the end of the day we closed with strength behind us."

The indifferent aftermarket performance of the new Plains deal - which has been running counter to a trend dating back to last December, in which most new bonds traded higher in the secondary market, at least in the days immediately following pricing - does not bode well for the new issue market, a high-yield syndicate official said.

Nor does the fact that the deal was downsized to $365 million from $500 million, he added.

Tyson still sizzles while Williams fizzles

A trader said that Tyson Foods Inc.'s recently priced 10½% notes due 2014 "continue to do well," quoting the Springdale, Ark.-based meat and poultry producer's bonds at 96.5 bid, well u[p from the 92.756 level at which those bonds priced a week ago.

However, he said that by the same token, Williams Cos. Inc.'s 8¾% notes due 2020 "continue to slide," seeing them at 97.25. The Tulsa, Okla.-based natural gas company priced its split-rated (Baa3/BB-) $600 million of the bonds at 99.159, also a week ago.

Quiet in the primary

Trailing the Tuesday session during which the above-mentioned Plains Exploration deal was priced, the Wednesday new deal market remained quiet.

Two U.S.-based issuers are now shopping deals.

Anixter International Inc. is on the road with a $200 million offering of five-year senior bullet notes which are expected to price by the end of the week.

Banc of America Securities, JPMorgan and Wachovia Securities are joint bookrunners for the short-term debt refinancing and general corporate purposes deal.

And Dole Food Co. Inc. is marketing a $325 million offering of senior secured notes due 2014.

That refinancing deal, which is being run by Deutsche Bank Securities and Banc of America Securities, is expected to price next week.

Neither offering generated any news on Wednesday, sources said.

Jamaica's Digicel being marketed to junk buyers

Apart from Anixter and Dole, the market is keeping an eye on a pair of deals from companies based outside the United States.

Kingston, Jamaica-based wireless company Digicel Ltd. is offering $435 million of senior unsecured notes due 2014 (confirmed B1//existing B-), via Citigroup, JPMorgan and Credit Suisse.

The roadshow was expected to wrap up on Wednesday.

Proceeds will be used to acquire an equity interest in the prospective issuer's sister company, Digicel Holdings (Central America) Ltd. and for general corporate purposes.

Digicel Holdings launched operations in Honduras and Panama in late 2008, according to a market source.

An emerging markets mutual fund manager, who agreed to speak Wednesday afternoon on background, said that the Digicel dealrunners have not been actively marketing the bonds to conventional emerging markets accounts.

"It seems that they are looking for a different audience," the manager said.

"They have to pretty much depend on the U.S. high-yield buyers, who at least have some comparables to Digicel, in order to see where the appropriate yield would be," the emerging markets investor remarked, adding that the main holders of Digicel's existing bonds are no doubt in the center of the dealers' gunsights.

"They need the money to fund the acquisition of two Central American operations," the investor said.

"The proceeds from that sale are pretty much going into the hands of the CEO of the company, who is basically cashing out of the Central American operations, and passing those operations onto the company.

"So it's a difficult story to tell."

No Digicel price talk surfaced on Wednesday, according to market sources.

However the investor said that the company is likely attempting to get the deal done with a yield in the mid-teens.

Cemex aims at new buyers

Also playing to a novel audience is the benchmark-sized junk-rated deal from Mexico's Cemex, SAB de CV, a fallen angel now in the market with its first bonds to feature high-yield covenants. It is also coming to market via Citigroup.

Marketing of the dollar-denominated offering of senior notes (//BB), which is expected to come with a three- to five-year maturity, was also expected to conclude Wednesday.

"They need to sell a significant amount of assets in order to cover some of the debt repayment they're talking about," the emerging markets mutual fund manager said.

"I don't know if that is going to be achieved efficiently in this kind of market."

And given present volatility in the capital markets Cemex is likely not benefiting from its status as a fallen angel, the investor added.

"Cemex was pretty much a blue chip credit.

"Now they have to deal with a totally different audience, so it's a much more challenging market for them now that they are a high-yield credit. I don't think they've looked at a deal from that perspective for the past 10 years.

"And they were pretty much forced to come to market because of the lack of interest on the part of their bankers to roll over their debt.

"They had to find another option."

The investor expects the company to sell $450 million. Elsewhere a source close to the deal expects around $500 million.

As with Digicel, no price talk surfaced Wednesday on Cemex.

However the emerging markets fund manager also believes that Cemex is attempting to get the deal done with a yield in the mid-teens.

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