Auto sales numbers weigh on Ford, GM; Charter, Level 3 paper weaker; Casino bonds drift downward

By Stephanie N. Rotondo and Paul A. Harris

Portland, Ore., Oct. 1 - High-yield bonds in the automotive sector came under pressure as sales figures for the previous month were released Wednesday.

Ford Motor Co. reported a hefty decline in its sales, while General Motors Corp.'s figure came in above expectations. Still, Ford paper dropped almost 5 points on the day, and GM debt fell at least 2 points.

Charter Communications Inc.'s bonds continued to edge down slightly, just one day after the cable operator announced a tender offer for up to $100 million in debt. Level 3 Communications Inc.'s notes were also deemed weaker on the day.

Though there was no news out to cause it, casinos were seen generally lower on the day. Station Casinos Inc.'s bonds dropped about 2 points, while MGM Mirage's paper fell 4 points.

Market indexes decline

As the market remained on pins and needles, wondering if a revived bailout plan would indeed get passed, market indicators ended the mid-week session lower.

A trader said the CDX Index fell half a point to 89.75 bid, 90.25 offered. The KDP High Yield Index was also lower, closing at 63.39 with a yield of 12.48%, compared to 64.26 with a yield of 12.24% on Tuesday.

Traders also said that the first day of the quarter was lackluster as far as trading volumes were concerned.

"Quotes are few and far between," one trader said. "Accounts are still trying to figure out where they ended up last quarter."

"It just still feels like there is some liquidation going on," said another trader.

"We'll see if they vote tonight," he added, referring to the proposed re-vote on the renegotiated U.S. government financial bailout plan. "That will set the tone for tomorrow."

Market seen 'a little rich'

Noting steep losses in the bank loan market, a banker said that the high-yield market looks a little rich right now.

Although there was no primary market activity, the source noted that in the high-grade market Wisconsin Power & Light Co. priced $250 million of 7.6% 30-year debentures (A2/A) to yield 7¾%, 349.9 basis points over Treasuries, on Wednesday. At the same time, Interstate Power & Light Co. (A3/BBB+/) sold $250 million of 7¼% 10-year debentures to yield 7 3/8%, or Treasuries plus 358.2 bps. Both companies are units of Alliant Energy.

"When was the last time an A2/A utility printed at 350 basis points," the source wondered aloud.

Sales numbers weigh on Ford, GM

Ford Motor paper lost nearly 5 points on the day, while sector peer General Motors dropped at least 2 points on the back of declining sales figures.

One market source called Ford's benchmark 7.45% notes due 2031 down 4.5 points to 39.5 bid, 40.5 offered. GM's benchmark 8 3/8% notes due 2033 were meanwhile down a deuce at 36.5 bid, 38.5 offered.

At another desk, a trader saw Ford's 5.7% notes due 2010 down at 75 from 77 previously. He also saw GM's lending arm, GMAC LLC, weaker, with its 7¾% notes due 2010 at 59 from 60 previously.

Another source called Ford's 7% notes due 2013 down 4.75 points at 58 bid, while GM's 7 1/8% notes due 2013 slipped 4 points to 43 bid.

An ever-tightening credit market coupled with economic concerns and rising gas prices were blamed for hefty declines in the automakers' sales last month. Dearborn, Mich.-based Ford reported a 34% decline in sales, its worst month this year. Detroit-based GM saw its sales drop 16%. The better performance - at least compared to its peers - was attributed to the company's recent employee pricing promotion. Still, GM's figures beat expectations.

During its sales conference call, Ford compared the last few days with a natural disaster. As investors look to Washington to see whether the economy will pick up or grind to a halt, both companies are seen as vulnerable.

In an afternoon report, Gimme Credit analyst Shelly Lombard said that Ford likely has at least two years of liquidity, while GM may only have a couple quarters, given recent cash burn rates.

"We remain concerned about GM's near-term cash burn, especially since current economic issues will impact revenue and potentially offset the positive impact of its $10 billion cost savings plan," she wrote.

In related names, Goodyear Tire & Rubber Co.'s 9% notes due 2015 fell to 98, a trader said. He noted that the bonds were at 105 bid, 106 offered just a few weeks ago but have been losing about a point a day since then.

"In general, those bonds were down 1 to 2 points," he said.

Charter, Level 3 paper weaker

Charter Communications' debt continued to see slight losses just one day after the company announced a tender offer for up to $100 million in notes.

A trader quoted the 11% notes due 2015 at 64 bid, 65 offered, while another source deemed the 8% notes due 2012 down 2.5 points at 89.25 bid.

The St. Louis-based cable services provider said it would exchange up to $100 million of five series of notes linked to the holding company. Traders have previously called Charter one of the most levered companies in the market.

Elsewhere, Level 3 Communications' paper was called "fairly active" by a trader, who saw the 9¼% notes due 2014 "down a couple" at 72 bid, 73 offered.

Another source called that issue down nearly 5 points at 72.75 bid.

Level 3 has performed better over the year, generating modest growth and positive cash flow potential. The company has stepped away from its aggressive M&A approach to focus on cutting costs. However, the company still has almost $7 billion in long-term debt, which could bring the balance sheet down amid the current economic turmoil. Level 3 also is faced will slowing broadband traffic.

Casinos drift lower

With no specific or sector news out, casinos were seen drifting lower during the session.

Station Casinos' 6½% notes due 2014 fell to 27 bid, 28 offered from around 30 previously. MGM Mirage's 6 5/8% notes due 2015 slipped more than 4 points to 67.25 bid, while Harrah's Entertainment LLC's 5¾% notes due 2017 dropped more than 3 points to 24 bid.

Boyd Gaming's 7¾% notes due 2012 finished at 85.5 bid, down 2.5 points.

Broad market under pressure

Lehman Brothers Holdings Inc.'s senior paper regained a bit of ground, closing at 13.5 bid, 14 offered versus 12.5 bid, 13 offered on Tuesday.

Washington Mutual Inc.'s holding company debt remained active, ending the day at 63 bid, 64 offered, which a trader called unchanged.

Meanwhile, Nuveen Investments' 5½% notes due 2015 slipped to 39. A trader said that was about in line with the last trade around 40 a week ago.

Ashtead Group plc's notes were deemed lower overall, with its 9% notes due 2016 at around 82 and its 8 5/8% notes due 2015 at around 84.

After getting a downgrade from Moody's Investors Service on Tuesday, Duane Reade Inc.'s 9¾% notes due 2011 dipped to 83.25, a trader said.

"They have just been going down," a trader said, noting that the issue was closer to 90 a couple weeks ago.

Hertz Corp.'s 8 7/8% notes due 2014 fell to 86 from 91 bid, 92 offered.

Idearc Inc.'s 8% notes due 2016 were called "quite active," trading around 26, a trader said. Another trader pegged the issue at 25 bid, 26 offered. Dex Media Inc.'s 8% notes due 2012 fell 2 points to 45 bid.

Among retailers, Neiman Marcus' debt - the 9% notes due 2015, the 10 3/8% notes due 2015 and the 7 1/8% notes due 2028 - was seen softening into the low-80s. Blockbuster Inc.'s 9% notes due 2012 closed around 67, which a trader called "down a good bit."

"I would have pegged them in the low-70s before," he said.

The Star Tribune Co.'s first-lien loan fell to 34 bid, 36 offered as the company elected to not make a $9 million quarterly interest payment.

Consent results mixed

A banker said that the Waste Services Inc. consent regarding its 9½% senior subordinated notes due 2014 is going well.

"It's pretty simple," the banker said.

"The bondholders are getting a subsidiary as a guarantor that is currently not a guarantor, in exchange for allowing that subsidiary to incur debt subject to the typical debt incurrence test.

"And they're being paid three-quarters of a point."

Elsewhere the Ball Corp. consent solicitation for its 6 7/8% senior notes due 2012 expired on Wednesday, the source noted.

The company sought to amend the indenture governing restricted payments so that they generally match provisions governing restricted payments contained in the indenture of Ball's 6 5/8% senior notes due 2018.

The banker said that the company will not sweeten the offer.

"They were trying to conform their indentures and get something that was a little more flexible, to allow them to do more share repurchases," the banker noted.

"The bondholders, in this environment, were not ready to give that to them."

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