Ford and credit arm up on narrowed loss amid better market; Trump jumps; funds see $232 million outflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 24 - Ford Motor Co.'s bonds, and those of its Ford Motor Credit Co. auto finance arm, drove higher on Thursday, helped by a sharply narrowed fourth-quarter loss for the Number-Three domestic carmaker versus its year-ago red ink bath, as well as by the announcement that Ford will look to bring its costs in line with its lowered sales levels via another round of employee buyouts.

The Ford gains came against a backdrop of a better market tone for a second straight session, likely helped by such macroeconomic developments as Tuesday's sizable Federal Reserve rate cut, Wednesday's news that talks are under way to set up a capital infusion for the beleaguered bond insurers, and Thursday's news announcing a big government stimulus package aimed at heading off any incipient recession by putting money in the hands of consumers via tax rebates.

Junk issues were broadly higher, but one of the bigger gainers was Trump Entertainment Resorts Inc., whose bonds and shares shot up. News reports said that the city council in Atlantic City has had to drop its plans to appeal a $34 million property tax settlement with the New Jersey-based gaming company which that body agreed to last fall, but which some members recently said was excessive and should be challenged.

Other gainers included Cenveo Corp. and Avis Budget Group Inc.; both companies' bonds followed their sharply higher shares upward as they pretty much affirmed previously announced guidance.

Out of the distressed-debt precincts came the news that Quebecor World Inc.'s bonds were up 4 or 5 points, encouraged by bankruptcy court approval for the troubled Montreal-based printing company's debtor-in-possession financing.

Fund flows off $232 million on the week

Meanwhile, a market source familiar with the weekly high yield mutual fund flows statistics generated by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday some $231.9 million more left those funds than came into them.

It was the sixth consecutive weekly cash exodus, according to a Prospect News analysis of the AMG figures, including the $143.7 million outflow recorded in the previous week ended Jan. 16. In that time, dating back to mid-December, outflows have totaled $1.019 billion.

The latest week's outflow also brought net outflow for the year to Jan. 23 to $664.9 million from the previous week's $433 million outflow total, according to the analysis. (The year-to-date cumulative figures include the final three market sessions of 2007, according to the source). There have been four weekly outflows reported so far this year, against no inflows. In 2007, outflows among the weekly reporters totaled approximately $2.75 billion.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

Market indicators point northward

A trader said that the widely followed CDX index of junk market performance rose about ¼ point on the session, ending at 91½ bid, 91¾ offered. It had jumped a point on Wednesday. The KDP High Yield Daily Index - which had edged up on Wednesday - was up 0.42 Thursday to finish at 75.19, while its yield tightened by 11 basis points to 9.30%.

In the broader market, advancing issues outnumbered decliners by a two-to-one ratio. Overall activity, reflected in dollar volume, down 5% from Wednesday's levels.

Ford cruises higher

Ford's bonds moved up after the carmaker reported its results and said it would seek additional workforce cuts. Its benchmark issue, the 7.45% bonds due 2031, were seen by a trader having gained ¾ point to 71.25 bid, 72.25 offered, while at another desk, the bonds were called up 2 points at 71, although they had traded as high as 73 during the session before coming off that peak late in the day.

Ford Motor Credit issues were also better, such as the 9¾% notes due 2010, up more than ½ point at 95 bid. Credit's 7% notes due 2013 were up ¾ point to the 82 level.

That followed Ford's release of its numbers; in the fourth quarter, it lost $2.75 billion, or $1.30 per share - less than half of its year-earlier deficit of $5.63 billion, or $2.98 per share. Excluding one-time items, the company lost $429 million, or 20 cents a share, less than the roughly quarter per share Wall Street was expecting.

On an annual basis, Ford slashed its loss to $2.67 billion in 2007 from 2006's record $12.6 billion shortfall.

While North American vehicle sales continued to lag - after 76 years as Number-Two U.S. carmaker behind industry leader General Motors Corp., sales-wise, Ford last year surrendered that vaunted position to Toyota - Ford's European and South American operations were profitable, cutting the company's overall quarterly loss, and even North America's deficit narrowed by 43% on a pretax basis to $1.6 billion versus the same period in 2006.

Banc of America Securities, in a research note Thursday, said the numbers Ford reported were "about in line with market estimates, showing solid year-over-year improvement in the automotive business - with no real surprises."

While the B of A analysts said that they were "a little disappointed" in Ford North America's results, they noted that "year-over-year pricing was an improvement of $1 billion (in line with our $1.15 billion estimate), and the rest of the improvement was driven by a $300 million increase in volume and $300 million in mix."

They praised the South American results as "a stand-out performance," and said that while Ford Credit's earnings were "modestly lower" than expectations, the results were "not that bad given market conditions."

Despite its losses, Ford's liquidity "remains solid with cash balances at year end of $34.6 billion." Ford Credit's liquidity picture also "looks sound," with a $16.7 billion year-end cash balance and plans to issue as much as $20 billion in unsecured public debt should the occasion arise.

Despite the improved financial performance, Ford executives on the company's conference call said that 2008 would likely be a difficult year, and announced plans to bring expenses in line with revenues by a second round of job cuts. Over the past two years, Ford cut its North American workforce by more than one-third to about 88,000 employees; it will now begin the new round of headcount reductions by offering all 54,000 of its U.S. factory workers buyouts - some for lump sums up to $70,000 - and hopes to further whittle down the workforce by attrition, not filling positions that may open should someone leave or retire. Ford executives declined to give a target figure for workforce reductions.

Ford's gains had some carryover effect, towing sector peer GM higher as well. Its benchmark 8 3/8% bonds due 2033 were up a point at 79.5 bid, 80.5 offered, while GM's 49%-owned auto finance arm, GMAC LLC's 8% bonds due 2031 were 1½ points better at 80.5 bid, 81.5 offered, a trader said.

Avis, Cenveo gain on forecasts

Apart from the carmakers, junk issues were up across a fairly wide front.

Avis Budget Group's 7 5/8% notes due 2014 were seen up about a point at 92 bid, 93 offered, in line with a jump of 16.15%, or $1.62, in the Parsippany, N.J., car rental company's New York Stock Exchange-traded shares, which closed at $11.65.

That followed the company's late-Wednesday announcement that it expects its 2007 EBITDA, excluding unusual items, to total between $405 million and $410 million, not too far off its previous projection of $410 million. Pre-tax income for the year, ex-items, should come in around $195 million, in line with previous estimates. Avis further predicted that pre-tax profit should increase in 2008 versus 2007's levels. The Avis stock- though not the bonds - also got a boost from the news that its board had authorized buying back up to $50 million of shares.

Also seen benefiting from a positive forecast was Cenveo, whose 7 7/8% notes due 2013 pushed up 3 points to 87 bid, 88.5 offered. Another source saw them up a point at 86 bid.

Its NYSE-traded shares zoomed $2.79, or 21.87%, to end at $15.55. Volume of 1.7 million shares was almost triple the norm.

The Stamford, Conn.-based commercial printing company's securities rose after it reaffirmed its full-year 2007 guidance calling for $300 million of adjusted EBITDA - well over the roughly $250 million which Wall Streeters generally anticipate.

Bond, shareholders betting on Trump

Elsewhere, Trump Entertainment Resorts' 8½% notes due 2015 - up about 2 or 3 points on Wednesday - continued to gain on Thursday, apparently helped by the end - for now - of the threat of a possible challenge by the Atlantic City city counsel to its $34 million settlement of a property tax dispute involving the company's three casino-hotel properties.

A trader saw the notes at 71 bid, 72 offered, which he said was "up maybe 4 points on the day," while at another desk, a market source pegged the bonds at 72 and called that a 6 point jump, although that may not have taken into account Wednesday's movement.

Meanwhile, the company's Nasdaq-traded shares shot up 56 cents, or 16.97%, to end at $3.86.

The local Press of Atlantic City reported on Thursday that the city council learned that it could not appeal a controversial tax appeal settlement with the gaming company which that body had approved in early November. Since then, some of the council members claimed that they had not been given full information before they voted on it, and called the deal with Trump excessive. Among the critics is the city's new mayor, Scott Evans, who termed the settlement a bad deal. It consists of consists $22 million in tax credits over the course of six years and $12 million in cash, which the city already paid in December.

One member brought up a motion asking that it be appealed to the local tax court - but the city's legal counsel said that this could not legally be done. The newspaper quoted council solicitor Billie Moore as telling the legislators that "there was a settlement agreed to by both parties that both had representation."

He said that the council would needed "compelling proof" that something in the agreement or the settlement process was done incorrectly in order to challenge it.

Council members called for - and got - the release of thousands of pages of documentation about the deal, which critics hope will provide them with the legal basis they need for a future challenge.

Quebecor up on funding OK

A trader saw Quebecor World's bonds up around 4 points across the board.

He said the 4 7/8% notes slated to come due later this year and the 6 1/8% notes due 2013 moved up to 53 bid, 55 offered, while the 9 ¾% notes due 2015 advanced to 56 bid, 58 offered and the 8¾% notes due 2016 were at 55 bid, 57 offered.

Another trader quoted the 6 1/8s up 5 points, though at 49 bid, 51 offered, and attributed the rise to news of Quebecor's bankruptcy financing.

The U.S. Bankruptcy Court for the Southern District of New York, which is overseeing the company's reorganization, on Wednesday okayed its interim debtor-in-possession financing. Quebecor World can now access $750 million of its $1 billion DIP arranged by Credit Suisse and Morgan Stanley. The company has said it will use the funds to pay wages and other operations costs.

Tough market

The primary market held still once again on Thursday.

The fact that there were no developments on either of the two high yield issues presently in the market took no one by surprise.

On Thursday market sources told Prospect News that there has been no news for days on the two deals that are believed to be "in the market."

To recap, Harrah's Entertainment Inc. has been marketing a to-be-determined portion of its $5.275 billion of senior unsecured cash-pay notes, via a syndicate of banks led by Citigroup.

Harrah's is also marketing a $3 billion Libor plus 300 basis points term loan tranche, which is being offered at a discount of 96.50.

A buy-side source who focuses on both bonds and bank loans said that there has lately been more activity on the loan than on the bonds.

Also in the market is Petroleum Development Corp.'s $250 million offering of 10-year senior notes (B3) via Morgan Stanley.

While specifying that information on either of these deals has been hard to come by, sell-side sources who spoke on Thursday said that it would be a surprise to hear any developments whatsoever in the near term.

One high yield syndicate official, not in the deal, suggested that Petroleum Development could almost certainly place its bonds if it is willing to pay up.

However, the official added, given the premium the company would likely have to pay at present, it does not seem to make much sense.

This source also said that it may not have made sense, one week ago, for Atlas Energy Operating Co. and Atlas Energy Finance to price a downsized $250 million issue of senior notes due Feb. 1, 2018 (B3/B) at par to yield 10¾%.

A hedge fund manager saw those bonds trading at 101 bid, 101½ offered, late Thursday.

The syndicate official asserted that, given the 10¾% yield the Atlas Energy notes probably ought to be trading around 105.

"The Street has had a pretty big short on it," the official said.

"The yield didn't make sense on a relative value basis. But they were pricing it in a tough market."

What it takes

As the doors closed on the Jan. 24 session, the 2008 primary market remained perched exactly where it had been one week previous, when the above-mentioned Atlas Energy deal was priced on Jan. 17.

That is to say, what was true at the Jan. 17 close remained true at the Jan. 24 close: thus far in 2008 only two deals totaling $850 million have cleared the new issue market (on Jan. 11 Southwestern Energy Co. priced $600 million of 7½% senior notes due Feb. 1, 2018 at par).

As Prospect News made the rounds on Thursday it quizzed sources as to what is required to regenerate even a modest flow of deals through the primary market.

One word was included in all the responses: "Stability."

"In order for the primary market to have some activity there has to be some stability in secondary levels, and stability in the broader capital markets," one syndicate source asserted.

Another syndicate source said that it could take two to three weeks of stability before the primary market reopens.

One caveat, among a couple of these sources, was that higher rated issuers such as Southwestern Energy, whose new bonds are rated Ba2 by Moody's and BB+ by Standard & Poor's, could possibly show up with a deal at any time.

The same would not likely be true for issuers from lower down on the speculative grade credit spectrum, one source added.

"Right now all triple Cs are trading at distressed spreads," this official claimed, adding that circumstances in the leveraged markets will have to undergo significant positive changes in order for the high yield primary market to reopen to credits such as those.

© 2015 Prospect News.
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