Lear lowers guidance and auto sector retreats; Movie Gallery backs off gains

By Paul Deckelman and Sara Rosenberg

New York, Sept. 21 - The bonds and bank debt of the auto sector came under more pressure on Thursday as Lear Corp. announced that because of production cuts by its major automaker customers previously issued financial guidance needed to be revised lower.

On the distressed loan side, names like Dura Automotive Systems Inc., Tower Automotive Inc. and Delphi Corp. all felt the brunt of the negativity, according to a trader. Bond traders saw retreats in Tower, Dura and Dana Corp.

Apart from the auto sector, Movie Gallery Inc.'s bonds - which were pushed up Wednesday on market rumors that the company might enter into a strategic partnership - came back down Thursday as the buzz appeared to die out.

Lear lowers guidance, bonds follow

Lear's 8.11% notes due 2009 were seen by a trader going out at 94.5 bid, 95.5 offered, down a point, and its 5¾% notes due 2014 at 79.5 bid, 80 offered, down around ¾ point.

Another trader also saw the Lear bonds not quite so bad later in the day, seeing the 8.11s down around a point after the news of the lowered outlook, to around 94 bid, 95 offered, "then it kind of drifted back up during the course of the day," trading back up to the 95 bid level, which he saw as off ½ point.

Yet another trader, however, flatly declared that Lear "got hammered," seeing the 8.11s at 94 bid, 95 offered at day's end, off 1 to 1½ point2, and pegging the 53/4s at 79 bid, 80 offered, also down 1½ points.

Lear's New York Stock Exchange-traded shares meantime slid $1.77 (8.68%) to $18.61, on volume of 8.1 million, not quite five times the norm.

Lear said on Thursday that production cuts are expected to negatively impact 2006 net sales by about $300 million and core operating earnings by about 15% compared with prior guidance levels of about $18 billion in net sales and a range of $400 to $440 million in core operating earnings.

The Southfield, Mich., interior systems company went on to say that while the production cuts will adversely impact both the third and fourth quarters and each of Lear's business segments, about two-thirds of the decline is in the fourth quarter and a disproportionate amount is in the interior segment.

Dura loan, bonds off

As the auto sector was once again weighed down by bad news, Dura Automotive, a Rochester Hills, Mich.-based parts maker, saw its second-lien loan drop by 2 points to 93 bid, 94 offered from 95 bid, 96 offered, a trader added.

Dura's second-lien loan specifically has been watched closely since speculation of a potential bankruptcy filing surfaced the other week, and along with the speculation came rumors that the company is having a hard time lining up debtor-in-possession financing on favorable terms.

Late Tuesday, Dura was informed that that it was in danger of being delisted from the Nasdaq Global Market since its stock price has been below $1 per share for at least 30 consecutive days. But the company has six months to fix the situation.

And then on Wednesday, Dura's ratings were lowered by Moody's Investors Services, including the second-lien ratings which were dropped to Caa2 from Caa1.

Moody's said that the downgrades reflect the company's ongoing operating pressures in the automotive supplier sector which have recently been exacerbated by the announcement of additional production declines in the second half of 2006.

Dura's 8 5/8% senior notes due 2012 - which tumbled into the mid-50s during Wednesday's dealings on the Moody's downgrade - fell still further Thursday, finishing at 52 bid, 54 offered, while its 9% subordinated notes due 2009, which have been bid in an 8-9 context over the past few sessions, retreated to 7 bid, 9 offered.

"Dura was still getting whacked," another trader said, seeing the 8 5/8s ending around 53 bid, which he called down a point, in "pretty active" trading, while the 9s "were in the single digits."

Dura has been sliding for a week now, the 8 5/8s knocked off their long-time perch in the 70s by renewed speculation - fueled by a recent Lehman Brothers research note - that the company may soon join fellow partsmakers Dana, Delphi, Tower and Collins & Aikman Corp. in Chapter 11.

Yet another trader saw the Dura seniors fall as low as 50.5 bid, 51.5 offered in Thursday morning's trading, before coming back from that nadir to finish at 52.5 bid, 53.5 offered, which he called "still off 2 to 3 points."

Noting that the Dura 9% subs - which were still trading around the same levels where the company's senior notes are now as recently as the latter part of July - now trade only slightly north of Collins & Aikman's 10¾% notes due 2011, which languish in the mid single digits, he opined "it doesn't look good for them." He saw the 9s trade as low as 6.5 bid, 8.5 offered in morning dealings, before firming a little to close down about a point at 8 bid, 9 offered.

Dana drops, rebounds

"A lot of the auto parts makers were down early, they made their lows, then came back [off the lows] but still finished lower," he said.

A case in point was bankrupt Toledo, Ohio-based partsmaker Dana, which the trader said was "pretty active, trading in a pretty good range today, like Dura."

He saw Dana's 6½% notes due 2008 fall to 65.5 bid, 66.5 offered in the morning, "but then they came back" to end at 68 bid, 69 offered, which he saw as down ½ point. Dana's 5.85% notes due 2015 hit early lows at 63.5 bid, 64.5 offered in the morning, before going home around 65 bid, 66 offered, down a point on the day, while its 7 1/8% notes due 2028 bottomed early on at 65.5 bid, 66 offered, before ending at 66.5 bid, 67.5 offered, still down 1½ points on the day.

Tower, Delphi, tumble

Tower Automotive, a Novi, Mich.-based vehicular frames maker, saw its bank debt close out the day at 80 bid, 83 offered down from 85 bid, 90 offered.

The company's 12% notes due 2013 meantime dipped as low as 18 bid, 19 offered during the day, a trader said, but he added that "the bulk of trading was in the low 20s," and the bonds finished at "20 and change," which would still represent a one-point retreat from Wednesday's levels.

"Tower is not a tower anymore," another trader quipped, seeing the bonds go as low as 18 bid, 21 offered before finishing at 19.5 bid, 21 offered, off the lows but still down on the day. "It was ugly."

And, Delphi, a Troy, Mich.-based parts supplier, saw its revolver drop by about ¼ point to 102 bid, 102¾ offered, the trader added.

Metaldyne deal doubted

Elsewhere among the autos, Metaldyne Corp.'s 11% notes due 2014 "have been very active," a trader said, citing rumors making the rounds that the Plymouth, Mich.-based parts maker's recently announced deal to be acquired by Asahi Tec Corp. "might get undone."

In both Wednesday's trading and Thursday's the 11s gyrated between the upper 80s and the lower 90s, "so there's been a struggle here.

"I don't know if the rumor is warranted or not - but they seemed to settle down, trading around the 90 level," after falling as low as 88-89 "before popping a little bit."

No alliance for GM?

General Motors Corp.'s bonds meantime were "under pressure most of the day, which definitely did not help the cause" of the auto sector," a trader said, seeing the Detroit giant's benchmark 8 3/8% notes due 2033 at 84.5 bid, 85.5 offered, down 1½ points on the day. He cited news reports indicating that GM's possibility of inking a comprehensive alliance with overseas carmakers Renault and Nissan "now doesn't look too likely."

Another trader saw those bonds down 1¼ points at 84.75 bid, 85.25 offered, while the 8% notes due 2031 of GM's financing unit, General Motors Acceptance Corp., were unchanged at 102.75 bid, 103.75 offered.

He also saw Ford Motor Co.'s flagship 7.45% notes due 2031 down a point in apparent sympathy with GM at 76 bid, 76.25 offered, while the 7% notes due 2013 of Ford's financing arm, Ford Motor Credit Co., were off ¾ point at 91.5 bid, 92 offered.

Standard & Poor's said it is of the opinion that GM probably won't hook up in a wide-ranging alliance with Renault and Nissan - an idea which excited some in the market back around mid-summer when it seemed that such a combination might be able to help GM cut its costs and reverse its sales decline. There was even some talk at the time that Carlos Ghosn - widely credited with doing yeoman work in turning Nissan around and hooking it up with Renault, with Ghosn heading both companies - might come over to GM and likewise take over from current chief Rick Wagoner, a possibility that both Ghosn and Wagoner were quick to dispel.

Now that talks between the three companies have been going on for some weeks, with the negotiators scheduled to report back to Wagoner and Ghosn next month, "we don't expect a game-changing alliance to come out of that," S&P's chief auto analyst, Robert Schulz, said at an auto industry conference Thursday in New York.

Schultz added that "a broad, deep, all-encompassing alliance would be quite unlikely," news reports said.

Movie Gallery moves back down

Apart from the autos, Movie Gallery's 11% notes due 2012 - which had moved up several points to a 64-65 context on talk of a possible strategic alliance - came back in a trader said, quoting the Dothan, Ala.-based video rental company's bonds at 62.5 bid, 63.5 offered, down 1½ points.

"Movie has been up and down," a trader said, "It had a nice little run [Wednesday] and was off [Thursday]. The stock was also off, around $2, and we'll continue to watch that one."

He said the speculation "ran them up a couple of points, the stock was up about 10%, and [Thursday] they just kind of gave it up, a couple of big sellers came in and pushed the bonds down. There was just no support for it."

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