Six Flags weaker despite stronger quarter; Nortel hurt by numbers; AIG rallies; GM, Ford decline

By Stephanie N. Rotondo

Portland, Ore., Nov. 10 - Another round of earnings came out Monday, including quarterly reports for Six Flags Inc., Nortel Networks Corp. and American International Group Inc.

Six Flags posted stronger numbers for the quarter, though one market source stated that the figures "were not great." Still, investors seemed to remain nervous about the fate of the company and sent the bonds down at least 10 points during the session.

Also down at least 10 points was Nortel. Its disappointing third-quarter results - and another round of job cuts - were blamed on adverse market conditions. But the company said it was committed to preserving cash during the economic slowdown.

It was no big surprise that AIG posted a larger quarterly loss, given the company's current state. But the big news was a record bailout plan put together by the government - again. The newest financing gave the insurer's paper a boost.

Meanwhile, General Motors Corp. and Ford Motor Co. continue to see their debt structures fall. Both companies suffered last week as a result of bad quarterly reports and downgrades. On Monday, an analyst cut his price on GM's equity to zero, which likely also weighed on the company's debt.

Monday was a short session, and the distressed bond market will be closed on Tuesday for Veteran's Day.

Six Flags weaker

A trader said he was watching "Six Flags deteriorate" after the company released its third-quarter results.

The trader said the results "were not great and I think it's starting to make people nervous."

The trader pegged the 9 5/8% notes due 2014 at 20 offered, which he called down 10 to 12 points.

"I haven't seen a bid anywhere near it," he added.

Another trader said the bonds had "a pretty good smoke going," the 9¾% notes due 2015 at 15 bid, 18 offered, down from opening levels in the high-20s.

The New York-based amusement park operator posted a net income of $144.3 million in the third quarter, a 60% increase year-over-year. The company attributed the stronger numbers to declining operating expenses and costs, as well as revenue gains.

Revenue was 5% higher at $489.3 million. Attendance was also seen up about 200,000.

But despite the stronger showing, the company remained somewhat on edge regarding its debt load, as evidenced during its conference call.

"All that's left for Six Flags is to clean up the balance sheet," Mark Shapiro, chief executive officer said. "We cannot grow at the rate I know we're capable of growing while carrying this amount of debt. That's simply not a company I'm interested in running."

Company management gave few, if any, details as to how it would address its debt structure, but said it remained committed to researching its options.

Nortel hurt by numbers

Nortel bonds were also about 10 points lower on the day following its quarterly report release.

A trader pegged the 10¾% notes due 2016 at 40 bid, 42 offered, down from the low-50s previously.

Another trader saw the 10 1/8% notes due 2013 quoted at 36 bid, 42 offered. Though Nortel was not a name he followed regularly, he said, "I assume that it's reasonably lower than where they have been."

For the third quarter, Nortel posted a loss of $3.41 billion, down from a profit of $27 million the year before. The report included a non-cash charge of $3.21 billion, consisting of a goodwill writedown and deferred tax assets. Revenue declined 14% to $2.32 billion.

"In September, we signaled our view that a slowdown in the market was taking place," Mike Zafirovski, Nortel's chief executive, said in a statement. But current economic conditions have hurt the industry, including Nortel and its customers.

As such, the company said that it was looking to cut costs and preserve liquidity. In an effort to do this, Nortel has planned to give about 1,300 employees the ax and several top executives are also planning to vacate their posts. The recent job cut announcement is in addition to a previous cut of 1,200 employees.

Nortel also suspended its dividend on its series 5 and 7 preferred shares.

Nortel is a Toronto-based telecommunication equipment producer.

Bailout boosts AIG

A trader said American International Group's government "bailout part deux" caused a significant rally in the company's 5.85% notes due 2018.

The trader placed the issue at 57 bid, 58 offered, up from the mid-30s previously.

The U.S. government put together another $150 billion rescue plan to help the country's largest insurer, including $40 billion for partial ownership. The latter comes from the recently enacted $700 billion financial bailout package.

The record-making government infusion came as AIG reported a $24.47 billion loss for the third quarter. The declining value of the company's portfolio, as well as costs associated with restructuring, was blamed for the poor figures.

GM, Ford continue declines

General Motors' and Ford Motor's term loans traded down during Monday's market hours as the overall cash market was unchanged to slightly weaker with little to no trading taking place, according to a trader.

General Motors, a Detroit-based automotive company, saw its term loan quoted at 45 bid, 48 offered, down a half a point from Friday's closing levels, the trader said.

In the bonds, a trader said the variable rate discount notes due 2036 were offered at 13, while the 7.20% notes due 2011 were quoted at 33 bid, 36 offered, both weaker. The trader noted news of an analyst's downgrade of GM's equity to zero.

"That gives you some idea of the expectations there," he said.

And, Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted at 46 bid, 48 offered, down about a point from Friday's close, the trader remarked.

On Friday, General Motors' term loan had dropped about 6 points on the day and Ford's term loan had dropped about three points on the day. Both companies got hit with rating downgrades and posted weak earnings results, and this negative energy seemed to carry itself into Monday's session. The debt structure were likely also affected by the previously mentioned report, put out by Brian A. Johnson of Barclays Capital.

During that session, Standard & Poor's lowered General Motors corporate credit rating to CCC+ from B-, Fitch Rating put General Motors' CCC issuer default rating on watch negative, Moody's Investors Service lowered Ford's corporate family rating to Caa1 from B3, and Standard & Poor's left Ford's B- corporate credit rating on CreditWatch with negative implications.

These rating actions were somewhat attributed to the third quarter-earnings results that the two companies had released on Friday morning.

For General Motors, net loss was $2.5 billion, or $4.45 per share, compared with a net loss from continuing operations of $42.5 billion, or $75.12 per share, and revenue was $37.9 billion, down from $43.7 billion.

Ford's net loss was $129 million, or $0.06 per share, compared with a net loss of $380 million, or $0.19 per share, and revenue was $32.1 billion, down from $41.1 billion.

Also on Friday, General Motors had revealed that that estimated liquidity during the remainder of the year will approach the minimum amount necessary to operate its business and will fall significantly short in the first two quarters of 2009

The change in liquidity reflects negative adjusted operating cash flow of $6.9 billion in the third quarter. During the quarter, the company drew the remaining $3.5 billion of its secured revolving credit facility and made $1.2 billion in payments to Delphi Corp. as required by agreements between the companies as part of Delphi's bankruptcy proceedings.

The company added that the 2009 liquidity shortfall could be prevented if economic and automotive industry conditions significantly improve, it receives substantial proceeds from asset sales, takes more aggressive working capital initiatives, gains access to capital markets and other private sources of funding, receives government funding under one or more current or future programs, or some combination thereof.

Sara Rosenberg contributed to this article.

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