Ford slates output cuts, auto bonds lower; HCA seen as Q4 business

By Paul Deckelman and Paul A. Harris

New York, Aug. 18 - Ford Motor Co., spinning its wheels as it desperately seeks to extricate itself from the roadside ditch into which the domestic automobile industry has fallen, announced new output cuts for the current third quarter and the fourth. That pushed most of the Number-Two U.S. carmaker's bonds up on Friday, though not its most widely traded issue. But the bonds of automotive supplier companies that depend on Ford for a good chunk of their business were seen lower, including former Ford unit Visteon Corp. - the expected loss of business from the Ford cuts overshadowing intensifying takeover buzz about the company - and Lear Corp.

In the primary market, the mid-summer lull continued but participants that the gigantic $5.7 billion mega-deal that will fund a portion of the upcoming huge leveraged buyout transaction for Nashville-based hospital operator HCA Corp. is now expected to appear in the junk market in the fourth quarter.

Back in the secondary realm, not too much was going on, outside of the auto sector. A trader summed up the reason for the general lassitude in a word: "August," and laughed.

But there was activity among the automotive names, after Ford - already in the midst of a previously announced multi-year turnaround plan calling for the permanent closing of 14 facilities and cutting its workforce by as many as 30,000 people - revealed further steep production cutbacks, aimed at bringing its supply of vehicles in line with sagging demand.

A market source saw Ford's bonds generally firmer in response to the news that the troubled company is trying to turn things around - but with one very notable exception. Ford's most widely quoted and traded issue, its 7.45% notes due 2031, were seen down a point on the day, finishing at 78. One or two other issues were also lower, such as the 9.98% notes due 2047, which eased to 87 bid from 88.5.

But the source said that most other Ford issues seemed to have been propped up by the news, quoting the carmaker's 8 7.8% notes due 2022 at 85.625, up 1½ points on the session, while its 7 1/8% notes due 2025 were a point better at 73.5. The Ford 7½% notes due 2026 seemed to have done especially well, being quoted at 76.25 bid - a gain of nearly 3 points. However, it should be pointed out that most of Ford's other issues are relatively thinly traded, compared with the 7.45s.

A trader at another desk saw those latter bonds down 1¼ point on the day at 77.5 bid, 78 offered, while noting that the 7% notes due 2013 of Ford's financial arm, Ford Motor Credit Co., "didn't seem to have moved very much," hanging in at the same 91 bid, 91.5 offered level at which they had finished on Thursday.

Another trader saw the Ford 7.45s down ½ point on the day at 77.5 bid, 78.5 offered.

In the credit default swaps market the Ford news caused the cost of insuring Ford's debt to widen out by about 25 basis points to about 660 bps, or $660,000 per year to insure $10 million in debt. Ford Motor Credit's swaps were meantime seen around 10 bps wider at 385 bps.

The news of the coming additional cuts under Ford's "Way Forward" turnaround plan, and the likelihood of continued declining sales and falling revenues, caused both Standard & Poor's and Moody's Investors Service to put Ford's credit ratings, and those of its credit arm, under scrutiny for possible downgrades further into junk territory. The company's unsecured bonds, such as the 7.45s, are currently rated at B+ by S&P and B2 by Moody's.

Fitch meantime actually did downgrade Ford and its finance arm's corporate credit to B from B+ previously and lowered the companies' senior unsecured debt to B+ from BB-, warning that "volume declines in Ford's pickup segment, along with continued declines in midsize and large SUVs, are likely to accelerate revenue declines and negative cash flows in 2006."

The venerable Dearborn, Mich.-based automotive giant said it will temporary shut down nine assembly plants in the United States and one in Canada through the end of this year. That will cut its third-quarter production by 78,000 units, or 11%, from last year's levels, and it will slash fourth-quarter output by 21%, or 168,000 units, versus a year ago. For the full year, Ford's anticipated output of just over three million vehicles will represent a 9% decline from its 2005 output levels.

The cutbacks will come primarily at those factories that produce Ford's most profitable products, its high-margin light trucks and sport-utility vehicles. Full details on exactly which plants will be shut for how long will be released next month.

With consumers turning away from traditional big gas-guzzlers as pump prices remain above $3 a gallon in most parts of the United States, those models have borne the brunt of a steep sales decline, which last month saw Ford for the first time surrender its Number-Two U.S. sales ranking to Japanese rival Toyota Motor Corp., with Ford falling into third place. Both companies still trail industry leader General Motors Corp. - although Toyota's sales trajectory is trending upward, while GM, like Ford, has been losing market share.

A trader saw GM's benchmark 8 3/8% notes due 2033 down ¼ point on the session at 83.75 bid, 84.25 offered, while GM's financial arm, General Motors Acceptance Corp.'s 8% notes due 2031 were unchanged at 99 bid, par offered.

Visteon, Lear drop

But it was a different story among the parts suppliers who service Ford, notably Visteon and Lear, a trader said, calling the two "big losers on the news."

He saw Van Buren Township, Mich.-based Visteon's 8¼% notes due 2010 and 7¼% notes due 2014 each down a point, at 98.5 bid, 99.25 offered and 88.75 bid, 89.5 offered. At another shop, a market source saw the '10s at 98.625, down 5/8 on the day, while the '14s were down ¾ point at 89.5.

That retreat followed, and completely negated, a rise in Visteon's bonds seen on Thursday, when both series of notes had firmed by several points on market speculation and news reports indicating that French auto parts maker Valeo SA was eyeing Visteon as a potential purchase. Neither company would confirm that scuttlebutt.

On Friday, the Valeo-buying-Visteon scenario got additional impetus, as the Financial Times reported that Valeo is among bidders for all of Visteon - but may sell some of the company's assets later. This conjecture also remained unconfirmed on Friday. However, the takeover buzz was not enough to offset investor angst over the Ford cutbacks, which are seen heavily impacting Visteon - a former Ford subsidiary which still does a great deal of business selling components to its one-time parent.

Southfield, Mich.-based Lear Corp., which sells automotive interior components to original-equipment manufacturers like Ford and GM, was seen as another potential loser from the Ford output cuts. A trader saw its 8.11% notes due 2009 off a point at 98.25 bid, 98.75 offered, while its 5¾% notes due 2014 were down 1½ points at 81.25 bid, 82.25 offered.

Sea Containers down again

Outside of the autosphere, a trader said that Sea Containers Ltd.'s bonds - which had fallen a point or two on Thursday as the troubled Bermuda-based railroad and marine transportation company met with its bondholders to outline its shaky finances - continued to sink on Friday, with a trader quoting its close-in 10¾% notes slated to come due on Oct. 15 down 3 points to 88 bid, 89 offered, while its 7 1/8% notes due 2008 were also down a trey, at 87 bid, 88 offered.

There was "no news out" Friday, "so I guess people assume that [the Thursday meeting] didn't go too well - they assume the worst."

The company - in the process of selling off its ferry operations and other non-core assets with an eye toward cutting its bloated debt balance - has promised to present a restructuring proposal to its creditors sometime in the next few weeks.

R.J. Reynolds up on court ruling

The trader also saw R.J. Reynolds'7 ¾% notes due 2013 up between ½ and ¾ point at 101.75 bid, 102.75 offered, helped by a mostly favorable court ruling in the government's conspiracy case against the company's parent, Reynolds American Inc., and other elements of Big Tobacco.

The judge in the case ruled that while Reynolds and such sector peers as Philip Morris parent Altria Group Inc. and Loews Corp. had, in fact, violated racketeering laws in a decades-long conspiracy to hide the dangers of smoking, they could not legally be forced to fund a multibillion-dollar anti-smoking campaign, as the Justice Department had advocated.

S&P on Friday changed its outlook on the three tobacco giants to stable from negative previously, citing "the elimination of a sizable potential legal claim against the major cigarette manufacturers, as well as any near-term bonding requirements for the appeals process," which could have cost the cigarette companies billions of dollars.

Solo Cup firm despite downgrade

The trader saw Solo Cup Co. shrug off a Moody's downgrade, with the Highland Park, Ill.-based disposable foodservice and beverage-related packaging maker's 8¼% notes due 2014 half a point better at 88.25 bid, 89.25 offered.

That continues the strong momentum shown Thursday when Solo's bonds were seen having risen 4 points in the session - and 6 on the week up to that point - apparently helped by the news that the company's recently appointed president and chief operating officer, Robert M. Korzenski, will also assume the duties of chief executive officer, succeeding 50-year-plus Solo management veteran Robert L. Hulseman, who will stay on as chairman of the board of directors.

He also saw Wolverine Tube Inc.'s 10½% notes due 2009 at 88.5 bid, 89.5 offered, up 1 ½ points on the day, on "some story" about a Chinese company's expansion that is expected to benefit Huntsville, Ala.-based Wolverine, which makes tubing from copper and other metals for industrial customers.

On the downside, the trader saw Amkor Technolgy Inc.'s 7¾% notes due 2013 down a point at 91.5 bid, 92.5 offered.

Market higher on week

A high yield syndicate official marked the broad market unchanged on Friday, and the primary market once again remained quiet.

Another sell-side official said on Friday that junk had enjoyed a good week, with assistance from the equity markets which rallied through the period.

Marking high yield up "a couple of points," on the week the source commented that when the new issue market moves into a slowdown, such as the traditional pre-Labor Day lull now unfolding, investors who are still around tend to see a little bit of value in the market. Couple that with the fact that right now "there is not much to buy," the source said, and the stage is set for a nice rally.

The source also said that the market has been helped by perceptions on the part of investors that inflation concerns are dissipating, and that the Federal Reserve has at least paused, and has perhaps even stopped its two-year old regime of tightening interest rates which, over the course of 17 quarter-point increases, took the short-term rate to its present level of 5¼% from 1% in early 2004.

Quiet week tops $1 billion issuance

With no issues pricing during the final three sessions of the Aug. 14 week, the five-day period came to a close having seen $1.043 billion of proceeds raised in four dollar-denominated tranches, less than a third of the previous week's $3.63 billion.

Three of the week's four tranches came in the form of drive-by deals, in keeping with market sources' forecasts that the middle and late parts of August would be quiet in the primary market, with most business coming in the form of quick-to-market deals.

The lion's share of the week's issuance came from Xerox Corp., which priced an upsized two-part $650 million sale of senior unsecured notes (Ba2/BB+/BBB-) on Tuesday.

The Stamford, Conn., document management company sold an upsized $500 million issue of 6¾% 10.5-year notes at a 190 basis points spread to Treasuries, at the tight end of the Treasuries plus 190 to 195 basis points price talk. The tranche, which was upsized from $400 million, came at a 99.392 dollar price to yield 6.833%.

Xerox also added a $150 million tranche of floating-rate notes due in Dec. 18, 2009, which priced at par to yield three-month Libor plus 75 basis points, on top of price talk.

The overall transaction, which was priced high grade-style by Goldman, Sachs & Co. and Bear, Stearns & Co., came upsized by $250 million to $650 million from $400 million.

Lamar Media Corp. also priced a $200 million add-on to its 6 5/8% senior subordinated notes due Aug. 15, 2015 (Ba3/B) at 92.809 to yield 7¾% in a quick-to-market Monday transaction via JP Morgan.

The yield came at the tight end of the 7¾% to 8% price talk.

The only deal during the Aug. 14 week to have been marketed via an investor roadshow came from Broadview Networks Holdings, Inc., which priced a $210 million issue of six-year senior secured notes (B3/B-) at par on Tuesday to yield 11 3/8%, via Jefferies & Co. The yield was in the middle of the 11¼% to 11½% price talk.

At Friday's close year-to-date issuance stood at slightly less than $85 billion, in 245 dollar-denominated tranches, as on a year-over-year basis 2006 issuance continues to distance itself from that of the previous year. At the Aug. 18, 2005 close the $66.36 billion had been priced in 260 dollar-denominated tranches.

Empty calendar

Sell-siders asserted on Friday that the primary market will remain quiet, and could in fact remain "dead quiet," in the week ahead, and throughout the course of the nine-and-a-half market sessions between Monday's open and the early pre-Labor Day close on Friday, Sept. 1.

Presently no deals are thought to be in the market.

While these sell-siders allowed that there could be some quick-to-market issuance in the run-up to Labor Day, none claimed to have any names.

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