Ford falls, GM mixed as sales slide; new Rite Aid bonds hold; Countrywide climbs as sale wraps

By Paul Deckelman and Paul A. Harris

New York, July 1 - Ford Motor Co.'s bonds were seen lower Tuesday after the carmaker reported another horrendous sales drop in June from year-ago levels. Bonds of its domestic arch-rival, General Motors Corp. - whose sales also fell, although not as badly as some Detroit-watchers had feared - were seen mixed.

Rite Aid Corp.'s new issue of notes was seen having firmed from the deeply discounted levels at which those bonds had priced on Monday.

Countrywide Financial Corp.'s bonds were solidly higher as investors breathed a sigh of relief now that the troubled Calabasas, Calif.-based mortgage provider's sale to Bank of America Corp. has been completed.

While B of A now becomes the leading U.S. mortgage originator and servicer, others continue to beat a hasty retreat from that suddenly risky business. CIT Group Inc.'s bonds - nominally investment grade but with a number of issues actually trading like distressed junk bonds in response to the company's credit-crunch related financial problems - were seen solidly higher on the news that the New York-based lender is abandoning the mortgage field, selling its big portfolio of subprime mortgages so it can concentrate on its core operations.

Constellation Brands Inc.'s bonds were seen not much changed, even after the Fairport, N.Y.-based wine and spirits producer and importer reported fiscal first-quarter results that topped Wall Street's expectations, and updated investors on its debt-cutting progress.

Sources gave various spots on the high-yield market at Tuesday's close, although there was a consensus that it had been an extremely quiet day in junkland.

A source from a high yield mutual fund said that some names got scratched up a bit, but the market was a little better than on Monday.

"It's really a sector-by-sector situation," the buy-sider asserted.

"Some sectors are holding their ground, or have gotten a little weaker, while others are getting smashed."

An investment banker on a high yield syndicate desk said that even though junk took a pounding in June, with the Banc of America Securities High Yield Index coughing up nearly 2.7% on the month, the post-Fourth of July primary market is going to be busy.

This source professed visibility on three deals set to launch early in the July 7 week, come rain or shine.

Yet another syndicate source saw junk beset by the "End-of-June Blues" - a tune which is almost indistinguishable from the "End-of-March Blues."

"When these quarters come to an end it seems like people tend to be on the defensive," the sell-sider said.

Market indicators keep falling

A trader said that the widely followed CDX junk bond performance index was down 3/8 point Tuesday, seeing it around the 93½ bid, 94¼ offered level. The KDP High Yield Daily Index was again pointing lower, down 18 basis points to 73.20, while its yield widened by 6 bps to 10.29%.

In the broader market, advancing issues trailed decliners for yet another day, by a more than two-to-one margin. Activity, represented by dollar volume levels, jumped 46% from Monday's levels.

A trader characterized Tuesday's market as "a generally weaker day. Everything looked weaker."

Another trader said that from where he sat, "not a whole lot" was going on - "a little bit less than [Monday], but the market had pressure on it all day."

Another trader - who saw some issues "hanging in there" even against a backdrop of a generally weaker tone in the market - said that he had been seeing "the same thing going on for the last year - on any kind of perceived weakness, or considerable weakness, or any weakness, for that matter, our market seems to draw in buyers."

On the other hand, he also noted that "on any kind of strength, you have accounts taking money off the table, and selling into some strength." Other than watching the general trends, he said, "obviously, there are isolated incidents, with news-related items, or what have you," that cause issue to move around.

But he said that this week, "with the quarter-end [Monday], I think a lot of accounts have marked a lot of stuff down, and you have a lot of people out this week" ahead of Friday's Independence Day holiday, "so I think a lot of price movements were exaggerated today on light volume."

He did see "some [accounts] buying cheaper - but people weren't lifting offerings for the most part. People put out levels where they wanted to buy paper - and they bought 'em, or they didn't buy 'em."

New Rite Aids hang in there

A trader saw the new Rite Aid 10 3/8% notes due 2016 - which priced on Monday at a deeply discounted 90.588 - trading at 91 bid, 91.25 offered. A second said that Rite Aid "hung right in there" in a 91-91.75 context, which he said was a pretty good showing, "especially given this crappy market."

Another, who saw the bonds open at 90.75 bid, 91 offered, saw them end at 91 bid, 92 offered, echoed the sentiment that this was a "pretty good performance, considering the environment we're in. It was priced appropriately."

The Camp Hill, Pa.-based operator of the third-largest U.S. pharmacy chain priced $470 million of the bonds, deeply discounting them to lure investors in with a 12¼% yield. It realized $425.7636 million of proceeds - about the original size of the issue when Rite Aid began shopping it around.

But while some of the traders praised the performance of the new bonds, yet another saw the bonds exiting at 90.75 bid, 91.25 offered, up only marginally on the day. Rite Aid's established 6 7/8% notes due 2013 were meantime up 1 point at 60.5.

New Intelsat bonds are mixed

Another recently priced bond seen more than holding its own against the backdrop of a weaker market was Intelsat Ltd.'s 11½% notes due 2017. The Bermuda-based satellite communications company's Intelsat (Bermuda) Ltd. unit priced $2.23 billion of the bonds on June 24 at par as part of a $7 billion five-part offering. A trader saw the new notes trading at 100.75 bid, 101.75 offered.

However, another trader saw one of the other tranches of bonds that priced that day - the Intelsat Subsidiary Holding Co. 8½% notes due 2013 - trading well below issue; the bonds priced at par, but then traded downward, and he saw them Tuesday at 97 bid, 98 offered.

Ford bonds skid on big sales decline

Back among the established issues, a trader saw Ford Motor Co.'s 7.45% bonds due 2031 down 1½ points at 55 bid, 56 offered after the carmaker reported a 28.1% sales dive in June. Another saw those bonds drop as low as 56 bid before going out at 57.5 - which he called still down more than a point on the day. At another desk, a market source pegged the bonds at 56, down more than 2½ points on the session.

Dearborn, Mich.-based Ford - which for decades had been the second-largest-selling manufacturer in the U.S. market, behind GM, before surrendering that coveted spot last year to Toyota - said that its total sales, including sales of its Volvo brand and well as its familiar Ford, Lincoln and Mercury domestic brands, plunged by 28.1% to 174,091 cars and trucks from 242,029 last June.

Ford's problem was a combination of having too many big vehicles that car-buyers didn't want - its truck sales slid 35.6% to 101,981, with the flagship F-Series pickup, which used to be the perennial industry sales leader, nosediving 40.5% amid record-high gas prices - and not enough of the small cars that they did want. While its popular Focus sedan, for instance, posted a 53% surge in retail sales in the first half of the year, Ford only has one plant turning them out while it is in the process of trying to retool others to make the popular compact, and the lack of inventory to meet customer demand was a "big factor"' in the company's sales fall, Ford's group vice president of sales and marketing, Jim Farley, said on a conference call.

The Ford executive sounded an overall note of pessimism on the call, noting that consumer fundamentals and consumer confidence "deteriorated as the first half unfolded," and warning that the economy "enters the second half of the year with a notable absence of momentum and a high degree of uncertainty."

GM rides out sales slide

A trader meanwhile said that General Motors' 8 3/8% bonds due 2033 "were actually unchanged on the day" at 58 bid, 59 offered despite the Number-One carmaker's announcement of its own pretty sharp slide in car and truck sales versus a year ago during June.

GM's 7.20% notes due 2011, "one of the most active issues" in recent days, a trader said, closed unchanged at 75 bid, 76.5 offered, while the 8 3/8s were also unchanged at 58 bid, 59 offered. And a market source actually saw GM's 7 1/8% notes due 2013 quoted 1½ points higher at 64 bid.

However, another trader saw the GM benchmark bonds down 1 point at 57, and saw its 49%-owned GMAC LLC's 8% bonds due 2031 some 2 points lower at 62.

Yet another trader quoted the 8 3/8s at 59 bid in "very active" round-lot trading, calling that off ½ point from Monday's finish.

"I was surprised," he said, "I would have expected at least a minimal increase" in the bonds, given Wall Street's apparent "not-that-bad" take on the sales figures.

On the equity side of the fence, GM's New York Stock Exchange-traded shares rose 25 cents, or 2.17%, to $11.75.

GM - which managed to outsell hard-charging Number-Two Toyota by about 69,000 vehicles, as the Japanese carmaker was also hurt by inventory supply problems for its popular small, fuel-efficient cars - reported an 18.2% decline in sales to 262,329 cars and trucks versus 320,668 in June 2007. Sales of cars slid 21.1% while trucks declined 16%. The Chevrolet Silverado truck, GM's best-selling vehicle, declined by 24%, and its Hummer SUV division, which may be sold, lost 59% of its sales versus last year. GM saw gains in its smaller cars, with the Chevy Cobalt up 22%, and the Cadillac CTS and Chevy Malibu sedans posting gains of at least 16% - gains limited by GM's inability to fully meet the increased demand for the smaller vehicles.

Countrywide cruises as B of A sale closes

Elsewhere, traders said that Countrywide Financial's bonds were better, now that the sale of the problem-plagued mortgage lender to Bank of America has been officially completed. Some investors had feared that B of A might try to either back out of the deal altogether or at least renegotiate its terms in view of Countrywide's big losses and other mortgage-related problems, but that never came to pass.

A trader saw its 6¼% notes due 2016 up 4 points at 90 bid, while a market source at another desk saw its 4% notes due 2011 up more than 3 points to the 94 level.

CIT jumps as it jettisons mortgage business

Another big mover among the financial credits was CIT Group, which announced that it was selling its home lending business - a $9.3 billion portfolio of subprime mortgages - to Lone Star Funds for $1.5 billion in cash; the private equity firm will also assume $4.4 billion of outstanding debt and other liabilities.

CIT also said that it will sell a $470 million portfolio of loans financing manufactured homes to Vanderbilt Mortgage and Finance, a unit of billionaire investor Warren Buffett's Berkshire Hathaway Inc., for about $300 million.

CIT - which has struggled with a downturn in the value of its residential loans - will take a pretax second-quarter charge of about $2.5 billion due to the sale. CIT, stung by the unanticipated downturn, is looking to get completely out of the mortgage business and other non-core areas like student loans and railcar leasing, in order to concentrate on its core commercial finance operations. It will realize cash proceeds of $1.8 billion from the transactions announced Tuesday.

The news that CIT was unloading a major underperforming asset caused its bonds and shares shoot up.

One of its most active issues was the CIT Group Funding Co. of Canada 5.20% notes due 2015, which have recently been trading like badly distressed junk bonds despite their nominal Baa1/A/A ratings from the major agencies. Those bonds had closed Monday languishing below 54.5, a market source said - but had jumped to just below 73 by Tuesday afternoon on a number of big round-lot trades, several in the $5 million category.

Parent CIT's 5.20% notes due 2010 showed somewhat less movement, going from a Monday close of about 80.5 to peak levels Tuesday around 87.5, before coming off those highs to settle in during the late afternoon at round 83.375.

However, another trader saw CIT's 5% notes due 2015 at 73 bid, 74.5 offered, and its 4¾% notes due 2010 at 81.5 bid, 82.5 offered, both down 1½ points.

Constellation Brands bonds steady

Constellation Brands' bonds were being quoted mostly unchanged, even though the company - the world's biggest wine merchant, by volume - reported solidly better results for the fiscal first quarter ended May 31.

A market source saw its 7¼% notes due 2016 having pushed as high as 98 from prior levels around 95, although most of those higher trades were in relatively small odd-lot trades. By the end of the day, though, the bonds had come off those peaks, ending up maybe ¼ point above 95. On the other hand, its 7¼% notes due 2017 were seen about a point lower at just under 95, on several large-block trades.

There was little activity seen in its other bonds - the 8 1/8% notes due 2012, which were trading around the same par levels at which they finished on Monday, in mostly small odd-lot trades, and its 8 3/8% notes due 2014, still around the same 102 level seen on Monday, although there were a couple of very small late trades below par.

A trader said that the 2017s finished at 99.75, in "quite active" trading. While he saw them as unchanged, he added that "in this current environment, that's actually a good result." He said overall, there was "no great shakes" as far as price movement.

Constellation - whose well-known wine brands include Paul Masson, Robert Mondavi and Manischewitz, whose liquors include Black Velvet, Schenley, Mr. Boston and Fleischmann's, and which also imports and markets in the United States such beer brands as Mexico's Corona Extra and Corona Light, Germany's St. Pauli Girl and China's Tsingtao - reported that it earned $44.6 million, or 20 cents per share, up from $29.8 million, or 13 cents a share, a year earlier. Excluding one-time restructuring and acquisition-related charges, Constellation's adjusted net income rose to 34 cents a share from 21 cents a year ago, and beat analysts' expectations that it would earn around 30 or 31 cents a share.

Sales were up 3% to $932 million versus $901 million a year ago, and also up from the approximately $905 million that forecasters were anticipating, all after excise taxes.

The results were helped by higher wine prices, as well as strong sales of its new higher-margin wine brands such as Clos du Bois and Wild Horse, which it purchased last December when it bought the U.S. wine business of Fortune Brands Inc. for $885 million.

Constellation also reported on its debt-cutting progress, telling analysts and investors on a conference call following the release of its results that it was able to use asset-sale proceeds to reduce its debt obligations, and expects to cut its ratio of debt-to-comparable-EBITDA via cash flow and earnings improvements and proceeds from additional asset sales (see related story elsewhere in this issue).

All quiet in the primary

The primary market was anything but busy on Tuesday.

No issues priced and no new deal announcements were made.

As to new deal announcements, one high yield syndicate source expressed the belief that other than deals already in the market no new issue news is likely to surface until the Independence Day festivities in the United States have come to a close.

As to the four deals which are in the market, no news surfaced Tuesday, although some sources had been anticipating hearing terms on at least one, maybe two and possibly three of them.

Sources said that the downsized Fox Acquisition Sub LLC $200 million offering of eight-year senior notes (Caa1/B-) was going well after being reduced from $230 million.

On Monday Fox shifted $30 million to its bank loan - also heard to be going well - from the bonds.

Meanwhile the bonds were talked at 13% to 13¼%.

That deal is expected to price on Wednesday.

There was no news on AEI's $250 million 10-year senior bullet notes (B2/B), which were talked Monday at the 10¼% area.

One sell-sider, not in the deal, said that AEI has generated more interest among emerging markets accounts than high yield accounts.

AEI is being led by Credit Suisse, as is Ferro Corp.'s $200 million offering of eight-year senior notes (B2) which was talked Monday at 8¾% to 9%.

The only other deal on the calendar at Tuesday's close was Ferrellgas, LP and Ferrellgas Finance Corp.'s $250 million offering of notes mirroring the company's existing 6¾% senior notes due May 1, 2014 (Ba3/B+) via Banc of America Securities LLC and JP Morgan.

One high yield syndicate source, not in the deal, said the Ferrellgas 2014 notes were 91 bid, 92 offered on Tuesday, implying a yield of approximately 8¾%.

Sources reckoned that the concession the company might have to pay to get the mirror deal done could bring it anywhere from 3/8 to ¾ behind that 8¾% price.

Still better than loans

One investment banker said that although the news is hardly good in high yield - the Stats ChipPAC deal pulled on Monday, continued softness in the secondary market and a huge, $651 million outflow from the high yield mutual funds reported late last week - the bank loan market is still choppier than the junk market.

"We still have better buyers," the banker said.

"In the loan market Clear Channel is still struggling in the mid-80s, and has no momentum."

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