GM, Ford move lower amid Delphi concerns; Calpine trades up; Fair Isaac retraces gains

By Rebecca Melvin

Princeton, N.J., Oct. 4 - The convertible bonds of General Motors Corp. and Ford Motor Co. moved lower in heavy volume on Tuesday as convertibles players hedged whether troubled auto parts supplier Delphi Corp. will file for Chapter 11 bankruptcy by the middle of this month, traders said.

But Calpine Corp. convertibles traded higher, as its underlying stock moved up, after news that an indirect Calpine subsidiary priced $300 million of six-year redeemable preferred shares.

The 1.5% convertibles of Fair Isaac Inc. retraced gains notched Monday as its shares turned downward amid no particular news.

No terms yet emerged for two mandatory preferred offerings on the horizon, one from NRG Energy Inc., offered as part of the financing of NRG's $5.8 billion acquisition of Texas Genco LLC, and a second, unveiled last week, by E*Trade Financial Corp., which will be part of the financing package of the company's $1.6 billion acquisition of BrownCo., the online brokerage service of JP Morgan Chase.

Overall the convertibles market was quiet due to the Rosh Hashana holiday, traders said.

Dephi concerns pressure GM, Ford

The $25 convertible bonds of GM slipped on Tuesday in heavy trading volume as GM stock fell more than 3% amid uncertainty about whether parts supplier Delphi will file for bankruptcy protection or whether its former parent GM will help bail it out financially.

Also trading were the credit default swaps of GM and General Motors Acceptance Corp., which were "pretty active," with "good two-way flow" from both buyers and sellers, a New York-based derivatives trader said.

Ford, which has ties to troubled parts supplier Visteon Corp., saw its preferred shares and stock close lower.

The down move follow a downdraft in the convertible paper of GM and Ford in September when values compressed, hurting many hedge players, according to a Connecticut-based buyside source, who said that he was not long in the paper at that time.

The tumble also followed Monday's move by rating agencies, including S&P, which put GM's BB long term and B-1 short term debt and GMAC on credit watch amid concerns that the world's largest automaker won't be able to mount a turnaround potent enough to deal with its troubled North American operations.

The rating agency cited sharply deteriorating product mix and sales, pricing pressure and the uncertainty related to Delphi for its action.

S&P also put Ford's BB+ long-term debt and B-1 short-term debt on watch, citing similar concerns, but added that it was unlikely to go below BB/B-2 for its ratings on the No. 2 U.S. automaker.

However, a New York-based hedge fund manager called the credit rating actions a "nonevent."

Earlier this year, S&P cut Ford and GM's ratings to below investment grade, a change that has already had its affect in making it more difficult for the companies to borrow money. GM debt totaled $284 billion as of June 30, and Ford debt was $158 billion, S&P said.

Troy, Mich.-based Delphi has been in negotiations with its former parent and the United Auto Workers on how to restructure operations, threatening bankruptcy should a deal not be reached. On Friday, Delphi, the nation's largest auto parts supplier, said it could be close to breaching certain debt-to-earnings requirements on loan covenants.

Delphi already told Wall Street it drew down $1.5 billion of a $1.8 billion credit facility in August. The company could avoid the breach if it repaid the amount it borrowed by Friday.

Delphi, which is said to be seeking $6 billion from GM, aims to use the cash to reduce expenses by offering some long-time workers bonuses to retire, quit or accept lower pay. The money could also be used to pay for pensions and health care for the retirees, according to recent reports.

Detroit-based GM spun off Delphi in 1999 but still accounts for half its business. The world's largest automaker bought $14 billion in parts last year from Delphi.

GM's 4.50% convertible bond ended down 0.07 point, or 0.29%, to 23.82, and 829,400 shares changed hands or about four times its average three-month running volume. The 5.25% convertibles closed down 0.07, or 0.43%, at 17.15 as a larger than average 1.7 million shares changed hands; and the GM 6.25% convertibles closed down 0.15, or 0.76%, at 19.60 on slightly lighter than average volume. GM shares closed down 96 cents, or 3.1%, at $30.08.

The credit default swaps of GM were steady on Tuesday at about 795 after widening on Monday, according to a New York-based trader. The credit default swaps of GMAC were at 510, he said.

Ford's 6.50% preferred shares ended down 0.62, or 1.7%, at 35.54 on an extremely heavy volume of 3.2 million shares, compared to its average three-month running volume of 407,308 shares. Ford stock ended down 0.11, or 1.1%, at $9.78.

Calpine convertibles rise

The 4.75% convertibles of Calpine rose about 2 points to 59 bid, 60 offered, according to a Connecticut-based trader, as its underlying shares gained 8.4% in more than two times average running volume.

Other convertible paper of Calpine, like its 6% convertible, didn't trade significantly, the trader said. "The 6% is always 3 points below parity. It doesn't move," he said.

Shares were helped by the San Jose, Calif.-based power company's news that it priced in a private placement a $300 million offering of six-year redeemable preferred shares at Libor plus 950 basis points.

Calpine, which is trying to lower its $18.7 billion of junk-rated debt through restructuring that involves asset sales, is also in the midst of a battle with bondholders over $400 million being held in an escrow account. The company wants to use the money to buy natural gas, but the bondholders don't want the funds to be put to that use.

"It's suing Bank of New York for withholding the money, and it's going to stay there until a judge sorts it out," a Connecticut-based buyside said of Calpine.

Calpine shares gained 23 cents, or 8.4%, to $2.97.

Fair Issac retraces gains

The 1.5% convertibles of Fair Isaac, which makes credit-analysis software, traded down to about 108.5, versus its closing stock price of $43.23, which was down 84 cents, or 1.9% on the day. On Monday, the 1.5s traded at 110.75, compared to its underlying share price of $44.75.

The Minneapolis-based software company had seen its shares track steadily higher since mid summer and again after last week's upgrade by JP Morgan to "overweight" from "neutral."

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