New Year trading starts slow; GMAC leads the way following change to bank status; MGM notes slide big

By Stephanie N. Rotondo

Portland, Ore., Jan. 2 - Trading in the distressed bond market got off to a slow start during the first session of 2009, as many players were still absent from their desks.

Still, those traders who were at their desks said the market continued to be firm, despite the lack of volume.

"The market is better but there is not may people in attendance," a trader said.

GMAC LLC's bonds were the most active of the day, following the recent news that the company was able to make the transition to a bank holding company. Sources saw the bonds gaining anywhere from 6 to nearly 7 points on the day.

One trader called the 7¼% notes due 2011 6.5 points higher at 86, with at least $6 million changing hands. The 6¾% notes due 2014 meanwhile advanced about 2 points to 70.5.

At another desk, GMAC's subsidiary, Residential Capital LLC, was also seen gaining ground, its 8 7/8% notes due 2015 a point better at 18 bid. GMAC's 6 7/8% notes due 2012, however, bucked the overall trend in the name, losing about a point to close at 76 bid.

On Wednesday, GMAC finalized a deal to become a bank, a move aimed at gaining access to the government's TARP funds. GMAC, the financing arm of General Motors Corp., has struggled along with its former parent, and was further pressured by mounting losses at ResCap. In becoming a bank, the company received $5 billion in aid from the Treasury Department. In exchange for its bailout funds, the Treasury will receive 5 million 8% preferred shares of GMAC, with the option to purchase more.

On Friday, the company released more details surrounding its new status. GMAC said that it would no longer be the exclusive lender for GM and would also stop financing leases entirely. The new agreement negates a previous exclusivity agreement between the parties that expired in November 2016.

In the rest of the automotive arena, Ford Motor Co.'s 12% notes due 2015 moved up about 3 points to 79 bid, 80 offered, while its 7% notes due 2013 inched up 2 points to 70 bid. Kar Holdings Inc., a wholesale used car auctioneer, saw its floating-rate notes due 2014 gain 4 points to close around 38, while its 8¾% notes due 2014 held steady at 42.

Meanwhile, MGM Mirage's 8½% notes due 2010 dropped considerably, though traders were at a loss to explain why. Several sources said the bonds traded at 64, down from previous prints around 80.

"I am not sure why that is," a trader said of the hefty slide. There was no news out to prompt the move, though the industry in general suffered through 2008 and investors might be worried about what 2009 will bring.

MGM's 6 5/8% notes due 2015 also lost some weight, albeit slightly. The bonds finished the day at 63 bid, about half a point lower.

A trader also noted that Verizon announced that its deal with Alltel Corp. would be completed within the next week. However, he said there was virtually no reaction in Alltel's debt.

"It hasn't seemed to prompt a big rise in Alltel's bonds, like I thought it would," he said.

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