CIT mostly lower in busy trading as worries grow; GM little moved on exit; Seitel down again

By Paul A. Deckelman and Stephanie Rotondo

New York, July 10 - CIT Group Inc. was the center of attention in trading Friday, dominating absolutely dominated everyone's most-actives list for a second straight session as the bonds gyrated around at mostly lower levels amid increasing investor worries that the New York-based commercial lender will not be allowed to bolster its balance sheet by issuing low-interest, federally backed bonds under the government's Temporary Liquidity Guarantee Program.

Such a rejection, should it occur, would force CIT to seek other, more onerous ways to deal with its upcoming maturities - and it has at least several dozen such near-term obligations.

Elsewhere, the emergence of General Motors Corp. from its fast-paced Chapter 11 case stirred little excitement in the debt markets. Its bonds were steady to slightly lower in trading.

On the other hand, Seitel Inc. was lower for a further session, continuing a several days long slide triggered by the predictions of sharply reduced revenues in the upcoming quarter from the Houston-based provider of seismic forecasting services.

CIT tops most actives

A trader said there was "lots and lots and lots of trading" in CIT. He said that "as the day wore on," the company's New York Stock Exchange-traded shares came off their early lows of as much as a 39% loss to "only" end down about 17%, on very heavy volume of 110 million, or six times the norm, but while the stock was trying to move back up, "from what we could tell, the bonds were all down."

A market source noted that nine out of the top 10 volume leaders were CIT issues and 12 out of the top 20.

A trader said that CIT Group Holdings' 4¾% notes due 2010 were probably the most active bond in the CIT capital structure - and "they've got a zillion of them" - with over $35 million traded, which another market source termed "a hell of a lot," especially for a for a summer Friday.

The trader said that the bonds had traded down to 69 bid, 71 offered by the day's end - down from 73 bid, 75 offered on Friday morning, and down further still from 75 bid, 77 offered at midday on Thursday.

He also saw its 5% notes due 2015 at 56 bid, 58 offered, unchanged from the morning level and actually slightly firmer, by ½ point, than Thursday at midday.

'So the short paper is down by 5 points," he said, "while the intermediate stuff bounced a little."

Another trader said there was "lots and lots and lots" of CIT paper trading, with the bonds lower on the day.

Yet another trader saw "a lot of trading across the whole capital structure," although he saw issues like the 7 5/8% notes due 2012 "on a wild ride, like Thursday," falling points in the morning and coming back to end little changed in the afternoon. He said those bonds had started the day down at 61-62, but had come back to end around 65 bid, which he said was around where they ended Thursday.

A source saw parent CIT Group's 7 5/8% notes due 2012 trade down 4 points at 61½ bid, with over $32 million traded.

At another desk, 5s were seen down more than 2 points at 34, while the 43/4s were down nearly 6 points at the 69 level, and the company's 5.6% notes due 2011 were 4 point losers at 66. Its 5.40% notes due 2013 lost more than 5 points on the day to end just under 55.

One of the traders - looking at the wildly divergent assessments about where the volatile bonds had traded and were ending up, cautioned that different sources might have different levels because some were looking at only round-lot trading, while others were counting in the numerous smaller odd-lot transactions as well.

Not 'too big to fail'?

CIT's bonds have been falling - in volatile trading and one heavy volume - since mid-week on investor angst that the Federal Deposit Insurance Corp. might choose to turn down the company's application to issue new, government-guaranteed debt at relatively low cost under the TLGP facility that the FDIC administers, under which a number of other money-losing financial institutions have issued billions of dollars of low-interest debt to replenish their barren coffers. Since the program's inception, and as of June 8, about $335.4 billion in debt has been guaranteed by the FDIC.

However, unlike the likes of a Citibank or a Bank of America, CIT, which mostly lends to mid-sized businesses, is, in the words of a trader watching its bonds drop, "not considered too big to fail," and Washington - stung by criticism of its massive bank bailouts - could decide to draw the line at CIT, whose survival is not thought to be crucial to the financial system the way, say, AIG's was.

"We don't view CIT as meeting the 'too big to fail' test, especially since there is a long list of other troubled banks awaiting regulatory attention, some with more insured deposits at risk than at CIT," wrote Kathleen Shanley, an analyst with Gimme Credit LLC, in a morning report to the research agency's clients.

Also working against CIT is the fact that typically the FDIC's backing is given to those companies with higher credit ratings, while CIT's rating has undergone some cuts as the liquidity concerns escalate, most recently on Wednesday when it was downgraded by Fitch.

A market source described CIT as "one of the good guys" who did not engage in the kinds of high-risk investment and lending activities that have famously brought many other, larger financial names low, thus separating the company from what he calls the "complete swindlers" that have in some cases been backed by the FDIC just because they were considered "too big to fail."

"So it's kind of an injustice," he declared

CIT's need for a ready source of new cash is evident - it has around $10 billion in debt maturing in 2010.

David Chiaverini, an analyst at BMO Capital Markets, said if the FDIC turns down CIT's request to participate in the TLGP the company will have to go to Plan B and seek other funding sources to meet its debt obligations over the next two years. He warned that such alternative funding sources "will include sharply curtailing their new business originations, and asset sales."

GM emergence a yawner

A trader said General Motors's bonds were "pretty much unchanged" at 11 bid, 13 offered, "across the board, pretty much where they were the last couple of weeks," even as slimmed down "New GM" emerged from bankruptcy on Friday, just 40 days after it had gone in - surely a record for settling such a complex bankruptcy case.

A source said that GM bonds were initially lower - its 8 3/8% benchmark bonds traded as low as 10 bid during the morning, before coming off those levels, but almost all of those lower trades were in small-sized odd-lot transactions not representative of the credit's true worth.

Another trader quoted those benchmarks unchanged at 11¾ bid, 12¾ offered.

Traders said that volume in the once actively traded credit was very light.

A trader at another shop saw the 7.20% notes due 2011 coming off the day's highs to end at 10 bid, 11 offered. The benchmark 8 3/8% notes due 2033, however, were called unchanged at 12 bid, 12.5 offered. He added that trading was thin.

But another trader called the debt down a little bit, quoting the notes generically at 10.5 bid, 11 offered.

After filing for Chapter 11 protections on June 1, the Detroit automaker was able to emerge from bankruptcy on Friday as a new company whose major shareholder was none other than the U.S. government and thusly, U.S. taxpayers.

The last 100 days have shown us that a company not known for quick action can move very fast, indeed, wrote Fritz Henderson, chief executive officer, in a blog entry shortly after the bankruptcy exit was announced.

"Starting today, we take the intensity, the decisiveness and the speed of these last several weeks and transfer them from the battlefield triage of the bankruptcy process to the day-to- day operation of the new company."

Additionally, the company said that it plans to go public once again, likely around the beginning of next year.

Also in the automotive sector, a trader said American Axle & Manufacturing Holdings Inc.'s bonds were "slightly better" around 30½ bid, 31½ offered. "There was not much activity, but they were quoted up."

Seitel still struggling

A market source said that CIT pretty much "sucked all of the air out of the room," leaving other issues to struggle along on relatively limited volume One such name was Seitel, whose 9¾% notes due 2014 continued a headlong slide to in the wake of the energy industry seismic services company's bearish guidance earlier in the week.

A trader saw the bonds going out at 48½ bid, 49½ offered - down from 52½ bid, 53½ offered at the close Thursday. He noted that the bonds were down a full 18 points from their previous levels around 65-66 on Tuesday.

The bonds had begun sliding on Wednesday down to the mid 50s from 65-66 earlier in the week after the company cautioned that it expects total revenue for the quarter ended June 30 to come in at $21.3 million - a 52% decrease from total revenue of $44.7 million for the same period last year. Cash resales for the second quarter of 2009 were $7.2 million, down 78% from the same quarter of last year.

It said that North American drilling activity continued to fall during the second quarter, with the average year to date rig count dropping by 38% compared to the year-earlier period - and warned that "we have seen no indications at this point that our industry environment will improve materially in the near term or that our resales will increase."

Unisys off on tender questions

A trader said Unisys Corp.'s 8% notes "traded lower over the last several days," lining that weakness to investor worries about the Blue Bell Pa. -based information technology company's recently announced offer to exchange new secured debt for several series of its existing bonds. The 8s were last seen trading around 74.5.

"One of the things going on there is the fact that [the 8% bonds] are second in line - nobody is exactly sure of what ratio of securities they're going to get in the package."

He noted that under the terms of the complex offer for four different series of the company's notes, the shortest-term issue, the 6 7/8% notes due 2010 are at the top of the priority list, and "will get one package" of new notes, stock and cash, while holders of the 8s and several other issues will get a different package, so what tendering holders of the 8s will get "depends on how many people tender [the 6 7/8s] , it changes the nature of the package" that each 8% holder will get."

Chemtura notes dip

Chemical maker Chemtura Corp. saw its bonds deteriorating slightly, as the company sought to extend its debtor-in-possession facility.

A trader said the bonds traded down a little bit, the 7% notes that come due July 15 around 57, down from morning levels of 59 bid, 60 offered.

Another source pegged the issue at 56 bid, 57 offered and the 6 7/8% notes due 2016 at 71 bid, 72 offered. The paper was down 1 to 2 points on the day, the source said.

Chemtura is requesting its DIP facility be amended, allowing for an extension to as far out as Sept. 22, 2010 from its current expiration of March 22, 2010.

The company said the reason for the extension is to allow the company time to refine its restructuring plan.

A hearing is scheduled for July 14.

Lear trades up

In bank loan activity, Lear Corp.'s term loan headed to higher ground in trading now that people have had a couple of days to analyze the company's Chapter 11 filing that was formally announced this past Tuesday, according to a trader.

The term loan was quoted at 70½ bid, 71½ offered, up from 70 bid, 71 offered during the previous session, the trader said.

"Firming and getting a little more active now that there's no more public/private issue because they filed for bankruptcy. Evens the playing field," the trader added.

Before actually filing for bankruptcy, the company had revealed that it reached an agreement in principle with a steering committee of its secured lenders and bondholders regarding the restructuring of about $2.3 billion of debt outstanding under its amended and restated credit and guarantee agreement, and about $1.3 billion of debt outstanding under its 8.5% senior notes due 2013, 5.75% senior notes due 2014, 8.75% senior notes due 2016 and zero-coupon convertible senior notes due 2022.

Then, on Tuesday, the company said that it received the support it was seeking from additional bank lenders and bondholders to move forward with the plan and, therefore, filed for Chapter 11.

As of the filing date, about 68% in principal amount of the company's secured lenders and more than 50% in principal amount of its bondholders had entered into agreements supporting the plan.

Lear plan details

Under the bankruptcy plan, Lear would have a new capital structure upon exiting that would consist of an up to $500 million exit financing first-lien term loan, a $600 million second-lien term loan and $500 million of series A convertible preferred stock.

The three-year exit financing first-lien term loan will have a 3.5% Libor floor and be priced at Libor plus 1,000 basis points for the first 18 months, Libor plus 1,100 bps for the following 12 months and Libor plus 1,200 bps thereafter.

This exit facility would actually be the company's $500 million debtor-in-possession term loan, which would convert into the exit loan upon Lear's emergence from bankruptcy.

The one-year DIP term loan, which can be extended to 15 months, is priced at Libor plus 1,000 basis points, with a 3.5% Libor floor.

JPMorgan and Citigroup acted as the joint lead arrangers and joint bookrunners on the DIP that will be used for working capital and other general corporate needs.

Lear also issuing stock

Lear's plan of reorganization also provides that the reorganized company would have a single class of common stock, including sufficient shares to provide for management equity grants, would issue to the lenders of warrants to purchase common stock with a value of up to $25 million and would issue to the holders of senior notes and certain other general unsecured claims of warrants to purchase 15% of the new common stock.

Specifically, senior credit facility claims would receive its pro rata share of the new second-lien term loan, the convertible preferred stock and about 26% of the new common stock.

Senior notes and other unsecured claims would receive about 46% of the new common stock and warrants to purchase 15% of the new common stock.

And, existing equity claims would have no recovery.

Lear is a Southfield, Mich.-based supplier of automotive seating systems, electrical distribution systems and electronic products.

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