GM bonds gain ground; ResCap dips, future foggy; CIT unfazed by quarterly loss; Ply Gem steady

By Stephanie N. Rotondo

Portland, Ore., Nov. 17 - General Motors Corp.'s bonds dominated Tuesday trading, just one day after the company released its first quarterly report outside of bankruptcy.

Though the carmaker still reported a hefty loss, it was optimistic that sales declines had fallen. As a result, the notes continued to gain ground, as they had in Monday's session.

Meanwhile, Residential Capital LLC's bonds were under pressure as the fate of the company was murky enough to cause concern. GMAC LLC, the parent of ResCap, is reportedly considering its options regarding what to do with the money-losing unit.

CIT Group Inc. reported its third-quarter results late Monday. But come Tuesday, traders saw the bonds holding their own.

Ply Gem Industries Inc. was also holding steady, shaking off a downgrade on some of its corporate debt.

GM bonds gain ground

One trader touted General Motors' benchmark 8 3/8% notes due 2033 as "by far the most active bond in all of high yield."

The bonds had begun to gain momentum on Monday, as the company reported financial results from its first 83 days out of bankruptcy.

The trader placed the bonds around 23.5, up from levels around 20 as of Monday and levels of 16 bid, 17 offered last week.

"So that's going up 2 to 3 points every day," he said.

At another desk, the 8 3/8% notes were seen 3 points higher at 23.25 bid, 24 offered, while the 7.2% notes due 2011 improved by 1 to 1.5 points to 22 bid, 23 offered.

Another trader saw "hundreds of millions" [of dollars] of GM bonds trading. He said that although he was "sure that a lot of the other issues were trading, too," the 8 3/8% benchmark bonds "seemed to be the big one," and saw them going out in a 23 bid, 23.5 offered context, which he said was up about 2 or 3 points from Monday's late levels around the 20 bid region.

"Some of their other issues, too" were likewise higher, "so there was a lot in GM Corp. trading."

On Monday, the formerly bankrupt automaker released its earnings report, which showed cash flows of $3.3 billion and $42.6 billion in cash and cash equivalents as of Sept. 31. However, the company said its liquidity was "expected to decline materially in the fourth quarter."

Still, the market saw the numbers as a positive step toward recovery. To that end, JPMorgan Chase & Co. upgraded its rating on the bonds to "buy" from "hold."

"We believe GM bonds offer the largest upside in the automotive credit sector," wrote analysts Eric Selle and Atiba Edwards in a report published Monday. The analysts noted that the company's debt was "still undervalued versus our recovery valuations."

According to the terms of the bankruptcy filing, debtholders will convert their holdings into equity in the newly reorganized company.

"We have significantly more work to do, but today's results provide evidence of the solid foundation we're building for the new GM," said Fritz Henderson, president and chief executive officer, in the earnings release.

"With a healthier balance sheet and a competitive cost structure, our focus is on driving top line performance. We'll achieve that by winning customers over, one at a time, with vehicles that deliver performance and value."

ResCap dips as future foggy

Residential Capital saw its bonds declining as the cost of insuring that debt is climbing.

A trader saw the 9 5/8% notes due 2015 trading around 67, down from around 71 on Friday. Another source pegged the 8 7/8% notes due 2015 at 56 bid, a loss of 7 points on the day.

But another source called the bonds down 3 to 4 points the 8½% notes due 2013 at 55 and the 8 3/8% notes due 2010 at 70 bid, 71 offered.

With the losses mounting up at ResCap, parent company GMAC LLC is considering its options. When GMAC put out its quarterly earnings last month, the company also said it would stop publicly reporting at ResCap, leaving many to wonder what was going on.

As such, credit default swaps in the credit have jumped considerably. As of Tuesday, investors were paying as much as $4 million plus a $500,000 annual fee to protect $10 million in bonds against default. On Monday, that figure was $3.7 million, plus the annual fee.

CIT unfazed by quarterly loss

CIT Group's debt remained steady, despite the company posting a hefty third-quarter loss late Monday.

A trader said short paper, such as the 6 7/8% notes due 2009, were still in the 67 bid, 68 offered range, while the 5.6% notes due 2011 and the 4.65% notes due 2010 were trading around 96.

"Those trade rich," he said.

New York-based CIT, which filed for bankruptcy on Nov. 1 after a failed debt exchange, reported a $1.07 billion loss for the third quarter.

An auction to settle the company's credit default swap will be held Friday.

Ply Gem still steady

Ply Gem Industries' notes shook off a rating downgrade and held their ground during Tuesday trading.

A trader said there were "only a couple trades" in the 11¾% notes due 2013, which he called "about unchanged" at 95.5 bid, 96.5 offered.

At another desk, the notes were quoted at 96 bid, 97 offered, also unchanged.

Standard & Poor's dropped it rating on the Cary, N.C.-based company's senior subordinated issues due 2012 to D from CC. The rating agency cited news that certain affiliates of the company had purchased another $46.7 million of the 9% notes.

Broad market mixed

Elsewhere in the distressed debt realm, a trader said that Tronox Worldwide LLC's 9½% notes due 2012 were at 71 to 71.5 bid, which he called up a point. "There was some activity, some trading," he said.

"There was decent-sized trading in round-lots," he said.

And, a trader said that Vertis Inc.'s 18½% notes due 2012 were around 47.5 bid, 48 offered, which he said was a half- to three-quarters of a point lower than on Monday.

A market source saw about $10 million of the bonds having traded by mid-afternoon.

Paul Deckelman contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.