Moody's downgrade weighs on GM, Metaldyne subs come in; Neff bonds hanging in; Rite Aid paper firms

By Stephanie N. Rotondo

Portland, Ore. Aug. 13 - The automotive sector took a small tumble Wednesday, distressed bonds traders reported.

First, a downgrade from Moody's Investors Service weighed on General Motors Corp.'s debt structure. The news sent the carmaker's bonds down more than a point, while the bank debt slipped about 2 points.

Second, a trader said he "finally" saw Metaldyne Inc.'s subordinated debt start to trade down. He called the current level on the subs too high "relative to the seniors."

Meanwhile, Neff Corp. held a conference call to discuss its second-quarter results early Wednesday. While the company reiterated its goal to pay down debt - and one trader called the numbers "decent" - the equipment rental company's bonds closed unchanged to slightly lower on the day.

A merger in the sector seemed to help Rite Aid Corp.'s paper, market sources said. The pharmacy chain's bonds were deemed as much as 2 points better during trading. The gains came despite a disappointing report on retail sales from the Commerce Department.

Solo Cup Co. released its earnings Tuesday and on Wednesday, the company's debt structure was wishy-washy. Bond traders saw the notes head higher, but the company's term loan finished the session weaker.

Downgrade weighs on GM

General Motors' debt hit the skids Wednesday on the back of a downgrade from Moody's.

"GM is getting killed on the downgrade," one market source said.

A trader called the 8 3/8% notes due 2033 1.5 points lower around 53, while another pegged the 7 1/8% notes due 2013 at 57.5 bid, just over a point weaker.

GM's term loan, as well as that of Ford Motor Co., also headed lower. GM's term loan was quoted at 74½ bid, 75½ offered, down from 75¼ bid, 76¼ offered, a trader said, while Ford's fell to 77½ bid, 78 offered from 78 bid, 78½ offered.

The trader said it was possible that GM's term loan performance could be related to the downgrade, but "I think most of that is expected and Ford was also down."

Moody's cut its corporate family and probability-of-default rating on the Detroit-based automaker to Caa1 from B3. The agency cited challenges in the U.S. auto market as part of its reason for the downgrade.

Still, Moody's was not altogether negative about the situation.

"GM has a pretty good track record in achieving its cost reduction targets and structuring transactions that help raise capital," Bruce Clark, senior vice president with Moody's, said in a written statement. "It's reasonable to expect that the plan being implemented now will help strengthen the company's liquidity position, which otherwise could have become very strained by late 2009."

Elsewhere in the autosphere, a trader said Metaldyne's subordinated notes were "finally" starting to trade lower, adding that the 11% notes due 2012 were "printing at 14, leaves a seller." He quoted the 10% notes due 2013 at 29.5 bid, 33 offered.

"Metaldyne seniors were 30-33 for a while, so the subs are now finally trading lower, as they should be," the trader said. "The subs are still too high relative to the seniors."

At another desk, a trader called the 11% notes 12 bid, 14 offered.

Neff bonds hanging in

Neff filed its 10-Q late Tuesday and, come Wednesday, traders saw the bonds unchanged to slightly lower.

One trader called the 10% note due 2015 a point softer at 38 bid, 39 offered. But another called the bonds unchanged at 38.5 bid, 39.5 offered.

The second trader called the equipment rental company's numbers "decent," noting that there was a conference call early in the session. He also said that the bonds had rallied from Monday when they were trading around 35.

For the quarter ended June 30, Neff reported total revenues of $72 million, compared with total revenues of $80.38 million the year before. However, net loss narrowed to $9.24 million from $45.14 million.

During its conference call, Neff's management said that it hopes to further reduce costs in an effort to generate free cash flow. Those proceeds will be used to pay down debt as the company continues to face a challenging market. Since the end of 2007, Neff has paid down some $8.5 million of debt.

"While we've had to sacrifice topline performance due to the market slowdown, we have the ability, particularly in challenging times like this, to continually generate free cash flow and pay down debt," Graham Hood, chief executive officer of the Miami-based company, said.

CVS/Longs merger helps Rite Aid

Rite Aid paper headed up during trading, despite new retail data that showed sales decreasing sector-wide for the first time since February.

A trader called the 9½% notes due 2017 and the 9 3/8% notes due 2015 up 1.5 points to the 66 area, while the 10 3/8% notes due 2016 closed at 94.5 bid, 95 offered. Another source saw the 8 5/8% notes due 2015 at 65 bid, about half a point better.

The first source said that the modest gains came on the back of the news of CVS Caremark Corp.'s $2.7 billion acquisition of Longs Drug Stores Corp.

According to the Commerce Department's monthly report, retail sales fell 0.1% in July, marking the first decline since February when sales fell half a percentage point. July's reading missed expectations of a flat month.

Elsewhere in the retail and restaurant sector, Uno Restaurant Holdings Corp. announced Tuesday that it would delay making a coupon payment on its 10% notes due 2011. As a result, Standard & Poor's downgraded the company to CC and said the rating could face another cut if the company does indeed fail to make the Aug. 15 payment. Moody's followed suit, lowering its rating on the notes to Ca from Caa2.

When asked if the announcement and the subsequent downgrade had any effect on the bonds, a trader said "Yes it had the effect that sellers want to know where the bid is, but no actual prices [have been] mentioned."

Another trader said the debt was at 50, no bid.

Still, the company claims that a bankruptcy filing is not in its future.

Meanwhile, Claire's Stores Inc.'s 10½% notes due 2017 were deemed unchanged at 34 bid, 35 offered.

Solo Cup debt mixed on earnings

A trader saw Solo Cup's bonds rally on the back of the company's earnings release, but its bank debt ended a bit weaker.

The trader deemed the 8½% notes due 2014 "up a couple" to around 87.5. But another source quoted the company's term loan at 97 bid, 97½ offered, down from previous levels of 97 3/8 bid, 97 7/8 offered.

On Tuesday, Solo Cup announced that for the second quarter net sales were $518.5 million, compared to $575.9 million for the 2007 quarter.

The company said that the decline in sales volume could be attributed to the divestiture of non-core product lines, strategic consolidation of its product portfolio and, to a lesser extent, external market factors.

Net income for the quarter was $8.3 million, compared to net income of $3.1 million last year.

Operating income for the quarter was $28.5 million, compared to $23.4 million in the previous comparable period.

And, adjusted EBITDA from continuing operations was $51.4 million versus $47.7 million last year.

For the 26 weeks ended June 29, net sales were $979.8 million, compared to $1.059 billion for the 2007 timeframe.

Net income for the six-month period was $10.5 million, compared to a net loss of $35.7 million last year.

Operating income for the six months was $46.4 million, compared to $8.8 million in the previous comparable period.

And, adjusted EBITDA from continuing operations was $98.8 million, compared to $56.9 million last year.

As of June 29, the company had $146 million of liquidity under its revolving credit facility and cash on hand.

Solo Cup is a Highland Park, Ill.-based provider of single-use products used to serve food and beverages.

Numbers boost Tribune loan

Tribune Co.'s term loan B gained some ground during market hours after the company revealed second-quarter and six-month results, according to a trader.

The term loan B was quoted at 68 bid, 68½ offered, up a quarter of a point on the day, the trader said.

For the second quarter, the company reported a net loss of $4.5 billion, compared to net income of $36 million in the second quarter of 2007.

Loss from continuing operations for the quarter was $3.8 billion, compared with income from continuing operations of $35 million last year.

The company said that the loss from continuing operations was due to after-tax non-cash charges of $3.8 billion to write down its publishing goodwill and newspaper masthead intangible assets.

Tribune also reported a loss from discontinued operations of $705 million in the second quarter, compared with income from discontinued operations of $1 million in the second quarter of 2007.

Operating revenues decreased 6%, or $67 million, to $1.1 billion when compared to the prior-year period.

And, operating cash flow from continuing operations decreased 2% to $221 million in the second quarter from $226 million last year.

"Our publishing results are, for the most part, in line with industry trends, which remain consistent with what we reported in the first quarter," said Sam Zell, chairman and chief executive officer, in a news release. "Most importantly we have repaid an additional $807 million of borrowings under the tranche X facility from the net proceeds of our asset-backed commercial paper program and from the Newsday transaction. These payments satisfy the December 2008 portion of the tranche X facility, and leave us with a remaining principal balance of $593 million due in June 2009.

"Since the beginning of the year, we have launched dozens of programs and products that have the potential to make a meaningful impact on our future, and we have made significant progress in aligning our expenses with the realities of an industry in recession. We remain optimistic and are confident in the strength of our brands and the talent within our company," Zell added in the release.

For the first half of 2008, Tribune's net loss was $2.7 billion, compared to net income of $13 million in the first half of 2007.

Loss from continuing operations for the six months was $2 billion, compared with income from continuing operations of $41 million last year.

The company also reported a loss from discontinued operations of $718 million in the six-month period, compared with loss from discontinued operations of $28 million in the 2007 comparable period.

And, operating revenues for the six-month timeframe decreased 6.6% to $2.1 billion from $2.3 billion in last year's first half.

Tribune is a Chicago-based media company.

Broad market mixed

Nortek Inc.'s 8½% notes due 2014 gained 2 to 3 points on the back of its earnings, ending the day around 58, a trader said.

Calpine Corp.'s stubs were seen half a point weaker around 17.

Sara Rosenberg contributed to this article.

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