Health care sector turns downward; GM, Ford securities remain under pressure; Avis, Hertz get hurt

By Stephanie N. Rotondo

Portland, Ore., Oct. 9 - As investors continued to push the market at large downward, the high-yield market took a hit Thursday.

That was evidenced not only by certain market indicators, but also by the recent declines seen in the health care sector.

Considered by some to be "core" names in high-yield portfolios, Community Health Systems' debt has been drifting, despite holding on longer than most of its high-yield counterparts. Traders saw the bonds "a lot lower," as were those of Tenet Healthcare Corp.

General Motors Corp. and its rival Ford Motor Co. also remained under pressure. With the market expecting auto sales to continue to fall through 2009, GM's stock dropped to its lowest level in 58 years, while Ford saw its seventh straight day of losses. In turn, the companies bonds ended the session lower.

In a somewhat related sector, Avis Budget Group Inc. and Hertz Corp. were deemed substantially lower on the day. But there was no news to provoke the decline, traders reported.

Market indicators weaker

"It was kind of a bad day," one market source remarked, as market indicators took a dip.

The CDX high-yield index fell 3 to 3.5 points to 79 bid, 80 offered, while the KDP High Yield Index fell to 56.75 with a yield of 14.79%, from 58.43 with a yield of 14.24%.

"There is rampant selling," a trader said.

"The market is in complete disarray," said another, likening the current crisis to the telecom meltdown.

"It is not so much a credit issue," he continued, "as liquidation and forced selling.

"Our market is just completely irrational. Liquidity is at a giant premium."

Health care sector turns downward

Health care names continued to drift lower, traders reported. Most names in that sector, such as Community Health, had previously been "holding up," a trader said, but as the economy turned south, so did the bonds.

A trader called Community Health 8 7/8% notes due 2014 "active and a lot lower," at 82 bid, 84 offered. The trader also called Tenet Healthcare's 9 7/8% notes due 2014 at the same level.

At another desk, a trader said Community Health's bonds took "a big move down" to around 82 from 88 bid, 89 offered previously.

"They really cracked down," he said.

Yet another source placed the bonds at 83 bid, down 6 points.

Earlier in the week, a trader told Prospect News that Community Health had been a volume leader in trading, away from the financials that have dominated trading of late. One reason for the volume, he said, was the large amount of debt under that moniker. Given how liquid it is, he added, it was typically a "core" name on many high-yield portfolios.

But as sellers ravaged the market, the sector went down with it.

"It is probably something you don't want to sell," the trader said. "But you can only sell stuff you really like in these market conditions."

And, as investors have withdrawn about $72 billion from mutual funds in the last month alone, core names such as these are bound to fall.

There has been little other catalyst for such moves, with little to no news out. On Tuesday, Tenet Healthcare announced it would shutter its hospital in Irvine, Calif. No specific reason was given for the closure, though increased competition might have been a factor. A Kaiser Permanente campus was built across the street in May, and Tenet has said in the past that Kaiser covered about 30% of its patients.

Ford, GM sink

As General Motors' stock hit its lowest mark in 58 years and Ford Motor's equity had its seventh straight day of declines, both companies saw the corporate debt fall as well.

One trader quoted the GM benchmark 8 3/8% notes due 2033 at 23 bid, 26 offered and Ford's 7.45% notes due 2031 at 29 bid, 31 offered.

Another trader placed the GM notes at 27 bid, 30 offered, down 2 points, and the Ford bonds at 29 bid, 31 offered, down 1 point. Another market source placed GM's 7 1/8% notes due 2013 at 28 bid, nearly 5 points weaker.

Ford's 7% notes due 2013 slipped 3.5 points to 45 bid.

Standard & Poor's late in the session placed its ratings on General Motors Corp., including the B- long-term corporate credit rating, on CreditWatch with negative implications.

S&P said the CreditWatch placement reflects the rapidly weakening state of most global automotive markets, along with capital market conditions that will remain a serious challenge for the foreseeable future. S&P also placed its ratings on GM's 49%-owned finance affiliate GMAC LLC, including the B- long-term counterparty credit rating, on CreditWatch with negative implications.

In a separate action, S&P on Thursday placed its B- long-term corporate credit and other ratings on Ford Motor Co. on CreditWatch with negative implications.

Losses in the automakers' equity were partly attributed to the end of a ban on short selling. But a new report from J.D. Power & Associates likely had a negative impact on both the stock and bonds.

The market researcher estimated that U.S. car and light-truck sales would continue to fall, hitting 13.6 million in 2008 and 13.2 million in 2009. That is a decline from last year's forecast of 16.1 million.

The lowered projections came after U.S. auto sales dropped 27% last month.

And, as sales continue to decline, both GM and Ford are seeing their balance sheet increase in vulnerability.

At GM, the company has not seen a full year in the black since 2004, while Ford has not posted full-year profits since 2005.

Still, of the two, Ford is seen as having more liquidity - at least 9 to 12 quarters of liquidity, according to Gimme Credit analyst Shelly Lombard.

Avis, Hertz get hurt

Car rental companies Avis Budget and Hertz both saw their bonds drop during trading, though there was no news to explain the move.

Avis' 7 5/8% notes due 2014 were seen closing at 44, down from 54 the day before. But a trader said that after the market close, the bonds were offered at 40.

"That's getting real serious," he said.

The trader did note that Avis' credit-default swap "had spiked quite a bit a few days ago."

The trader also said that Hertz's paper "got hurt." He pegged the benchmark 8 7/8% notes due 2014 at around 74, down from opening levels of 76.5 bid, 78.5 offered and from the previous day at 78 bid, 79 offered. The 10½% notes due 2016 slipped to a low of 68, compared to 73.5 bid, 74.5 offered on Wednesday.

Yet another source placed Hertz's 8 7/8% notes at 76 bid, 4.5 points easier.

Broad market under pressure

Constellation Brands Inc.'s 8 1/8% notes due 2012 fell to 92.5 bid, 93 offered versus levels around 94 previously.

"One name that hasn't cratered," according to one trader, was MGM Mirage's 7½% notes due 2016. He called the notes unchanged at 67 bid, 68 offered.

However, Majestic Star Casinos LLC's 9¾% notes due 2011 were offered at 5, the trader said, noting that he had them listed before at 8 bid, 12 offered. He speculated that the senior notes, the 9½% notes due 2010, were likely in the low-40s from 46 bid, 48 offered.

A trader called Lehman Brothers Holdings Inc.'s senior paper a "tad easier" at 12 bid, 13 offered, while another trader called the 6 7/8% notes due 2018 unchanged at 12 bid, 14 offered and the 6 5/8% notes due 2012 half a point softer at 11 bid, 13 offered.

Among other financials, Washington Mutual Inc.'s senior holding company paper, like the 4.2% notes due 2010, slipped 2 points to 54 bid, 57 offered.

GMAC LLC's 7.2% notes due 2009 were seen offered at 37, while its 6 7/8% notes due 2012 gained half a point to 36.5 bid. The benchmark 8% notes due 2031 dropped a point to 29 bid, 31 offered.

Level 3 Communications Inc.'s 9¼% notes due 2014 experienced "a substantial move," a trader said, to around 60 from 65 bid, 66 offered previously. Another source pegged that issue at around 60, down 5 points, while yet another called the bonds down 4 points at 60 bid, 62 offered.

Charter Communications Inc.'s 8% notes due 2012 fell 4 points to 79 bid.

Idearc Inc.'s 8% notes due 2016 "broke that 20 barrier," a trader said. He said the debt opened at 22.5 bid, 23.5 offered before falling to around 19.5. Another source deemed that down 4 points on the day.

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