CIT bonds little fazed by deferred coupon; AIG takes a hit; Ford sales result in mixed debt

By Stephanie N. Rotondo and Sara Rosenberg

Portland, Ore., Sept. 1 - The distressed debt market was "a little softer" Tuesday, according to market sources, following declines in the equities.

Still, some names managed to buck that trend, either by moving up slightly or by staying about the same.

CIT Group Inc.'s debt was one such name. Its bonds were steady to a tad better, despite news that the company was deferring an interest payment. But one source speculated the news was no surprise.

Also in the financials, American International Group Inc.'s paper fell in sympathy with its shares. The declines in the stock were attributed to an analyst report that cut the equity to underperform.

Elsewhere, Ford Motor Co.'s bonds ended the session unchanged after the automaker posted its August sales. But the company's term loan declined some, as the numbers were not as good as expected.

CIT steady after deferred coupon

CIT Group's debt was unchanged to somewhat better, traders reported, following news of the deferral of an interest payment.

One trader said the 5½% notes due 2014 closed around 52, while the 5.80% notes due 2011 inched up slightly to around 60. Still, he noted that CIT paper "hardly traded at all."

Another trader said there was "not a ton of trading" going on in the name, but deemed the debt that did trade "a smidge better."

"The shorter dated stuff started ticking up yesterday," he said, also placing the 5.80% notes around the 60 mark.

In a regulatory filing, New York-based CIT said that it was deferring a Sept. 15 coupon on its 6.10% junior subordinated notes due 2067. The company is allowed to defer payments from time to time under the terms of the debenture, providing a trigger event has not occurred. Should a trigger event occur, CIT must sell equity - of the common or preferred variety - and use proceeds to make the missed payment.

CIT noted in the filing that a trigger event had occurred, as its average four-quarters fixed charge ratio was less or equal to 1.1. However, the company has been unable to complete a stock sale.

One market player was not much surprised by the lack of activity in the debt following the news, calling the deferred payment a "foregone conclusion."

"I don't think anybody was all that surprised," he said. "And it was only on that one."

AIG structure takes a hit

Elsewhere in the world of finance, American International Group's bonds dipped in line with its equity counterparts, according to a trader.

The trader pegged the 5.45% notes due 2017 at 65 bid, 66 offered, down from levels around 68½ on Friday. He also saw the 8¼% notes due 2018 at 76 bid, 77 offered, which had closed at 79 bid, 80 offered on Monday.

Another trader noted that AIG's stock "got crushed, down 9 and change points," but saw its bonds, such as the 6.90% notes due 2017, pretty much unchanged in the lower 60s.

Another said AIG's paper was "all over the place," with the 4 5/8% notes due 2010 trading between 85½ and 891/2, which he called "screwy." The bonds were ending at 86½ - down from 89½ on Friday.

"It seems bizarre," he said of the name's movements, just a weird bond."

But he also saw AIG's 8.175% bonds due 2058 having recorded "25 trades on the day, all in the 40s" - versus trading levels around 50 on Monday.

AIG's stock (NYSE: AIG) meanwhile declined $9.33, or 20.58%, to $36.00.

The declines in the capital structure came as a Sanford C. Bernstein & Co. analyst recommended investors sell their AIG shares.

"AIG's current stock price allows very little chance for uncertainty and fails to incorporate considerable downside risk," wrote Todd Bault in a research note. There is a "very real possibility that the government reduces support once AIG is no longer deemed a systemic risk."

Bault also noted that the current price of the stock gives little room for the possibility that shareholders might get left in the cold as AIG attempts to pay off its government bailout loan. AIG's tab to the government totals about $182 billion. To pay off the hefty check, AIG has looked to selling certain non-core parts of itself.

Bault downgraded the company's stock to underperform.

Also in the financial sphere, First Data Corp.'s 9 5/8% notes due 2017 ended a tad lower at 85, according to a trader.

Ford sales result in mixed debt

Ford Motor's debt ended the day mixed after the company reported sales numbers that were lower than people were expecting.

In the bonds, a trader said Ford paper "seemed active," deeming the notes generally unchanged. He saw the 7 7/8% notes due 2010 "right around par," as were the 5.70% notes due 2010.

Another source called the benchmark 7.45% notes due 32031 steady at 76 bid, 76½ offered.

Ford's term loan was flat to weaker during Tuesday's trading session, according to traders.

The Dearborn, Mich.-based automotive company's term loan was quoted by one trader at 86½ bid, 87½ offered, unchanged from Monday. This trader, however, said that he saw the loan at 86 bid, 87 offered early in the day but then it pushed its way back up.

By comparison, a second trader was seeing the term loan quoted at 86 bid, 87 offered in the afternoon, down from 86½ bid, 88 offered on Monday.

And, the company's revolver was quoted by the second trader at 86½ bid, 88 offered as it widened out from 86 bid, 87 offered early in the day Monday.

For the month of August, total Ford sales (including Volvo) were 182,149, up 17% from 155,690 in August 2008.

Total Ford, Lincoln and Mercury sales for the month were 176,323, up 16.8% from 151,021 last year.

Total car sales for the month were 65,654, up 24.6% from 52,677 in the comparable prior year period.

And, total truck sales were 110,669, up 12.5% from 98,344 in August 2008.

The company attributed the rise in sales to increased customer demand for its fuel-efficient cars, crossovers and trucks.

Also in the autosphere, Chrysler Financial Services LLC's first-lien term loan strengthened on Tuesday after Chrysler Group LLC released its sales results, according to a trader.

The first-lien term loan was quoted at 95½ bid, 96½ offered, up from 95 bid, 95¾ offered, the trader said.

The company's second-lien term loan, however, was unchanged at 89 bid, 91 offered, the trader added.

For the month of August, Chrysler Group had total sales of 93,222, down 15% from 110,235 last year.

Total car sales for the month were 22,638, down 13% from 26,016 in August 2008.

And, total truck sales were 70,584, down 16% from 84,219 last year.

Although down on a year-over-year basis, Chrysler Group's August sales results showed a 5% improvement when compared with July of this year despite low inventory levels on a number of popular nameplates, a news release said.

"Chrysler Group had another strong sales month in August with the majority of Chrysler Group nameplates posting year-over-year or month-over-month sales improvements," said Peter Fong, president and chief executive officer-Chrysler Brand and Lead Executive for the Sales Organization, Chrysler Group LLC, in the release.

"The [Car Allowance Rebate System] program gave a boost to the industry in August, and as a result, we've increased production by more than 50,000 units, our factories are full-steam ahead building Chrysler, Jeep and Dodge vehicles for customers and replenishing dealer inventories," Fong added in the release.

Chrysler Financial is a provider of financial services for vehicles. Chrysler Group is a producer and seller of Chrysler, Dodge and Jeep vehicles.

Broad market steady to weaker

Among other distressed names, YRC Worldwide Inc.'s bonds "had some action," a trader said. He pegged the 5% notes due 2023 around 36.

"That's lower than a couple weeks ago, but about where they have been for the past week," he added.

Smurfit-Stone Container Corp.'s 8% notes due 2017 closed "kind of unchanged" around 62, in the words of one market source.

Paul Deckelman contributed to this article

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