Ford, credit arm up on sale talk; Energy Partners gains on takeover bid

By Paul Deckelman and Paul A. Harris

New York, Aug. 28 - Bonds of Ford Motor Co. and its financial arm, Ford Motor Credit Co., were higher on Monday on continued speculation - first raised late last week - that the embattled Number-Two domestic carmaker might follow the recent lead of arch-rival General Motors Corp. and sell a sizable stake in the credit unit.

Outside of the automotive realm, Energy Partners Ltd.'s bonds got a boost when Woodside Petroleum Ltd. made an solicited bid to acquire the New Orleans-based oil and gas exploration and production company for $883 million - but that deal is contingent upon Energy Partners shareholders rejecting the company's previously announced effort to buy Stone Energy Corp. The latter company's bonds fell on the news.

Also in the energy sphere, Giant Industries Inc.'s bonds were being quoted higher - although trading in them was very light - on the news that Western Refining wants to buy rival refiner Giant in a $1.22 billion deal that includes Western's assuming $275 million of Giant debt.

Another bond name that has recently been busily traded on M&A news is Jean Coutu Group Inc., whose senior notes shot up to levels well above par on the news that the Canadian pharmacy company will sell its United States drugstores to Rite Aid Corp., while its subordinated notes initially firmed smartly but then spent the next several sessions in full retreat. Those juniors were seen better Monday, bouncing up a little from those lows, while the senior notes were unchanged.

A market source said that the broad market was unchanged and extremely quiet on Monday. The source gave a spot on the CDX 100 which closed unchanged 100.125 bid, 100.25 offered.

And again on Monday the primary market produced no news whatsoever.

One sell-side source, however, said that high yield syndicate officials will begin returning to their posts as early as Tuesday, so that the latter sessions of the pre-Labor Day week, in the run-up to Friday's early close, could see a modest news flow.

Ford firms on credit deal talk

Back in the secondary arena, Ford gained, as did Ford Motor Credit Co., in the wake of intensified speculation that the struggling carmaker might look to sell a stake in Ford Credit. Such a move - similar to one made by GM several months ago - would kill two birds with one stone, bringing the money-losing auto giant some badly needed cash and, assuming the stake is sold to a major bank or other financially solid company, bringing up Ford Credit's ratings, now languishing deep in junk territory (Ba3/B+/BB-).

A trader quoted Ford's 7.45% notes due 2031 up ½ point at 78.5 bid, 79.5 offered.

"The short end of the Ford market did better today," another said, noting that credit default swaps contracts in the five-year area tightened by around 40 basis points from their levels on Friday - which would make it $40,000 less costly to protect the contract holder against a default of $10 million of Ford debt. Other CDS market sources estimated a 20 bps tightening.

The second trader added, however, that "strangely enough, the longer end of the market didn't improve that much" - he saw the 7.45s essentially unchanged at 78 bid, 78.5 offered, "so most of the appreciation was in the shorter end, not so much in the longer end."

Another market source echoed that assessment, quoting the 7.45s going home around 77.5, a point lower than their Friday close and well down from their opening on Monday at 79.5.

The Ford Credit 7% notes due 2013, on the other hand, moved as high as 94 bid during the session from their close Friday at 91.5. Yet another source pegged those bonds up a point on the day at 93.

A trader saw the bonds of Visteon Corp. - whose fortunes are linked with those of Ford, its former corporate parent and still its largest customer - up as well, with the Van Buren Township, Mich.-based auto parts maker's 8¼% notes due 2010 up a point at 97 bid, 99 offered, and its 7% notes due 2014 seen up 2 points on the day at 88 bid, 90 offered.

Paper says Ford eyes sale

Ford linked bonds - which had already been heading higher at the tail end of last week - got an additional jump start when the Detroit News reported over the weekend that Ford may be considering selling "a significant stake" in the Ford Credit arm. The paper quoted an analyst as saying that such a sale could bring $6 billion into the carmaker's coffers, which have been sapped by big losses caused by tumbling sales - Ford has lost $1.4 billion in the first half of the year alone.

Besides the proceeds, the paper noted that such a sale could result in a higher rating for Ford Credit, which would greatly lower the unit's cost of borrowing money.

The paper further noted that while in the past, "Ford has said it had no interest in selling a stake in Ford Credit, which has been a cash cow for the automaker even in lean times. But more recently it has said that everything is on the table as it prepares a restructuring plan expected to be announced shortly after Ford's Sept. 14 board meeting."

Pressure on Ford to sell at least part of the valuable credit unit has intensified ever since GM successfully sold 51% of its General Motors Acceptance Corp. financial unit to a group of private equity buyers in a deal that closed earlier this year. That sale brought $14 billion into GM's till.

Friday's news of Citigroup Inc. executive Robert Rubin's resignation from Ford's board of directors was being interpreted by some in the market as a sign that major moves are afoot, since it avoids a potential conflict of interest for the former Treasury secretary, who also sits on Citigroup's board. The Detroit News noted that Citigroup was a "key player" in the GM sale of control of GMAC, and quoted an analyst as having observed that a big stake in Ford Credit could prove to be "an attractive target for investment firms like Citigroup."

Apart from sale of a stake in Ford Credit - which the News story does acknowledge is at this point just "an option" and "isn't Ford's primary focus as it concentrates on operational issues in the wake of losses and declining market share" - Ford management has been reported in various media to be considering such moves as taking the company private, partnering up with one or more foreign automakers, or selling some of its nameplates. News reports Friday said that Ford was in talks with a JP Morgan Chase unit led by former Ford CEO Jacques Nasser on a possible sale of its prestigious, but money-losing, Jaguar unit, and perhaps its Land Rover operations as well.

GM's benchmark 8 3/8% notes due 2033 were seen up ¼ point on the session to 83.5 bid, 84 offered, while the top automaker's 7¼% notes due 2013 were also up ¼ point at 85.75. GMAC's 6 7/8% notes due 2012 were likewise up ¼ at 97.75.

Energy M&A triangle

Outside of the autosphere, Woodside Petroleum's unexpected offer for Energy Partners may well throw a monkey wrench into the latter company's pending efforts to buy Lafayette, La.-based Stone Energy.

Certainly, Energy Partners' bondholders and shareholders were enthusiastic about the prospect of such a takeover, with a trader quoting Energy Partners' 8¾% notes due 2010 at 104 bid, 105 offered, well up from prior levels around 97 bid, 98 offered, and saw Stone's 6¾% notes due 2014 drop to 99.25 bid, 100.25 offered from prior levels at 102.75 bid, 103.75 offered, since Stone would be the big loser if the Woodside deal goes through.

At another desk, a market source saw Stone's 63/4s drop to par bid, a nearly 3 point decline, and saw its 8¼% notes due 2011 down around 2 points at 101 - while Energy Partners' bonds leaped into the 104 area from 98. However, the source saw the Energy Partners bonds back off later in the session and end at a 99-par context.

Stone said it would study the bid for Energy Partners, but said that in the interim its acquisition by the latter company would go forward.

Stone's New York Stock Exchange-traded shares dropped $3.24 (6.81%) to $44.35 on volume of about three million shares, or six times the norm. Energy Partners' NYSE shares were meantime going the other way, zooming $5.74 (31.20%) to $24.14. Volume of 12.2 million shares was a dozen times the usual turnover.

Giant gains

The other big M&A news to come out of the energy patch on Monday was Western Refining's offer for Giant Industries, which will include Western's absorption of $275 million of the Scottsdale, Ariz.-based company's debt. A market source saw Giant's 8% notes due 2014 at 104, up 4 points on the day.

A trader at another desk saw the bonds quoted higher, although he didn't see much actual trading in them, with the 8s around 103, up from 99.5 bid, 100.5 offered, and the company's 11% notes due 2012 at 108.25 bid, 109.25 offered. The latter bonds, he said, did not move very much - maybe around half a point - since they "were already trading up there, assuming they'd be called or refinanced."

Bounce for Jean Coutu

Jean Coutu's 8½% notes due 2014 were seen up about 2 points on the session to the 94 bid, 95 offered area. Those bonds had been chopped down to about the 92 area over two sessions late last week from highs around par, after investors realized that they will not be taken out as part of its $3.4 billion sale of nearly 1,900 Eckerd and Brooks drugstores to Rite Aid. The bonds had initially hit those par-level highs when news of the asset sale was announced.

Jean Coutu's 7 3/8% notes due 2012, which moved up to around 105 bid from prior levels at par and then stayed there - unlike the subordinated bonds - were still around that level on Monday.

Starwood Hotels & Resorts Worldwide Inc.'s bonds firmed on the news that Moody's Investors Service had upped the White Plains, NY-based lodging giant's credit ratings to investment-grade levels, following a similar move recently by Standard & Poor's. Its 7 7/8% notes due 2012 pushed up to 107.625 from prior levels around 106.

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