Freeport remains most active issue; Nortel slips; GM, Ford waiver on bailout worries; Bon-Ton gains

By Stephanie N. Rotondo

Portland, Ore., Dec. 11 - The distressed bond market had a weaker tone to it Thursday, traders reported, following the trend set by the equities.

"It was pretty quiet, even the stock guys were quiet," said one trader. "Everything was pretty much a downer."

One of the few names to buck that trend was Freeport-McMoRan Copper & Gold Inc. The bonds remained one of the most active issues, with more than $60 million in debt trading. The bonds also continued their upward climb, gaining as much as 5 points on the day.

Continued bankruptcy chatter pressured Nortel Networks Corp.'s debt, though not nearly as much as on Wednesday. Traders saw the communications company's bonds falling a mere point, versus a 10-point drop the day before.

In the automotive arena, hopes of a government bailout faltered again Thursday, as lawmakers seemed hesitant to approve a recently drafted bill that would give the Big Three access to about $15 billion - less than the $34 billion they were originally seeking. As such, both General Motors Corp. and Ford Motor Co. saw their debt structures losing ground.

In the world of retail, Bon-Ton Stores Inc. reported its third-quarter results late Wednesday. The company's narrower loss gave its bonds at least a 1-point boost during the session.

Freeport remains most active

Freeport-McMoRan's bonds remained the most active issue of the day, traders reported, with about $35 million of the 8 3/8% notes due 2017 trading.

A trader called the issue 5 points better around 72. He also saw the floating-rate notes due 2015 gain 2.5 points to end around 63, with $27 million to $20 million trading, and the 8¼% notes due 2015 up more than 3 points at 73.75.

Another trader also saw the 8 3/8% notes move into the low-70s, calling that "up a couple points."

When asked why the bonds have been so active following the news last week that the company had halted its dividend program and planned to cut production, the trader was not sure. However, he noted, "It's a big issue, $3.5 billion."

Declining metal prices caused the Phoenix, Ariz.-based company to cut its dividend paid to stockholders. Production cuts have also been planned, as demand - especially in China, which had previously been a big copper importer - has fallen off during the recession.

Nortel notes slip

Continued concerns over a possible Chapter 11 filing weighed on Nortel Networks' debt, traders said. Still, the bonds were considered only about a point weaker following their approximately 10-point slide on Wednesday.

One trader said about $23 million of the floating rate notes due 2011 changed hands, down a point at 18.5. Another trader also called the bonds - which are trading at essentially the same levels - a point softer around 19.

The Wall Street Journal published an article on its web site late Tuesday that said Nortel was considering a bankruptcy filing as it looked to restructure. The company said Wednesday that it had retained Lazard Ltd. to research all of its possibilities.

In an afternoon comment, Gimme Credit analyst Kim Noland said she remained concerned over the company's welfare.

"Although the company maintains that a bankruptcy filing is not imminent...we have been concerned that even without a near-term liquidity problem, the company would be forced into restructuring down the road," she wrote. "It seems Nortel may choose to address these problems now which may entail a debt restructuring near term and a situation where asset value is insufficient to cover debt."

Furthermore, Nortel said Thursday it had received a notice from the New York Stock Exchange that its average stock price had fallen below the $1 requirement to remain on the exchange. The company has six months to remedy the problem before it will lose its place.

Nortel Networks is a Toronto-based communications provider.

GM, Ford waver

General Motors and Ford Motor saw their term loan levels come in during trading on talk that the $14 billion government bailout bill has stalled, according to a trader.

General Motors, a Detroit-based automaker, saw its term loan quoted at 42 bid, 46 offered, down from 44 bid, 48 offered, the trader remarked.

And, Ford, a Dearborn, Mich.-based automaker, saw its term loan quoted at 37½ bid, 40½ offered, down from 41 bid, 43 offered, the trader continued.

"There's a lot of uncertainty and the Street doesn't like uncertainty," the trader added.

In the bonds, a trader said that "not that many issues traded" of either name. He called Ford's 7.45% notes due 2031 down about 2 points at 24.5, while its 5.80% notes due 2009 fell more than a point to 96. The 7¼% notes due 2011 dropped a deuce to around 50.

In GM's debt, the 7 1/8% notes due 2013 were considered the most active, slightly weaker at 19.75. The benchmark 8 3/8% notes due 2016 closed at 16 bid, 17 offered, down from 19 bid, 20 offered.

Meanwhile, GM's financing arm, GMAC LLC, continued to see its 5.85% notes due 2009 slide. The bonds lost as much as 10 points on Wednesday after the company said it had so far not received enough tenders in its debt swap offer to become a bank.

"They got crushed," a trader said Thursday, seeing the bonds lose another 3.5 points to finish around 81.

As previously reported, General Motors, Ford and Chrysler LLC are all looking for access to government money, with General Motors and Chrysler seen as being in the most immediate danger of a bankruptcy filing if that help is not obtained in time. Both companies have said that cash could run out by the end of the year.

GMAC: not looking promising

On the restructuring front, the GMAC exchange offer turned out to be Thursday's topic-du-jour among sources from both the buy-side and sell-side, none of whom liked the company's chances of raising the capital necessary to qualify for bank holding company status, and thus gaining access to Troubled Asset Relief Program (TARP) funds.

GMAC, which is controlled by Cerberus Capital Management, announced earlier in the week that it is not seeing sufficient participation in its massive $38 billion bond exchange, which was extended to Friday.

GMAC said that it needs $30 billion of total regulatory capital in order to meet the Federal Reserve's requirements for GMAC to become a bank holding company, and it needs roughly 75% participation in the exchange to get there.

"There is no infusion by Cerberus Capital so they're not going to get there," said a high-yield portfolio manager not long after Thursday's close.

Simmons doubts

Elsewhere in restructuring, the chances of Simmons Bedding Co. don't appear too rosy, either, said the portfolio manager - even though a forbearance agreement with the senior secured lenders was extended to March 31, 2009.

"The bank loan lenders say they won't accept anything except the sponsors putting in equity," the buy-sider said.

Thomas H. Lee Partners acquired Simmons for $1.1 billion in 2003.

Word is the lenders turned down an amendment deal for Libor plus 800 basis points, with 200 bps up front, the buy-sider said.

"So far the bank loan lenders are saying 'No.'

"You're going to see a lot more of this kind of thing as we move into next year."

Bon-Ton bonds improve

Bon-Ton Stores posted a narrower loss for the third quarter and a trader said the retailer's bonds "continue to move up."

The trader quoted the 10¼% notes due 2014 at 19 bid, 20 offered.

For the quarter, the York, Pa.-based company reported a loss of $14.3 million versus a loss of $19.4 million the year before. Net sales fell 7.2% to $724.9 million compared to $780.8 million in 2007.

The company cited deterioration in consumer spending for its losses, adding that "the economic environment has been challenging in 2008, and we expect it to remain so in the near-term."

Elsewhere in the sector, Neiman Marcus Group Inc.'s 10 3/8% notes due 2015 were unchanged around 41. The Dallas, Texas-based company reported an 84% decline in profit for its first quarter of fiscal 2009 on Wednesday.

Dillard's Inc.'s 7 1/8% notes due 2018 gained 2½ points to close at 41.5 bid.

Sara Rosenberg and Paul A. Harris contributed to this article.

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