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Investors Flip Ford On Break

15 Dec 2006

There was a lot of chunky selling on Ford Motor's $7 billion term loan when it broke in the secondary market last Tuesday, according to traders.

There was a lot of chunky selling on Ford Motor's $7 billion term loan when it broke in the secondary market last Tuesday, according to traders. The selling caused the loan to dip after it broke at 100 1/4-1/2. One dealer said the loan was bid as high as 100 5/8 on the break, before backing down to 100 3/8 and settling into the 100 1/8-1/4 context.

A dealer said a lot of prop desks and hedge funds sold their allocations. "There were a lot of flippers on the break. More people were flipping than holding onto their allocations," he said. Trading was brisk in the loan with certain dealers exchanging $700 million of paper after it broke, said one dealer.

One investor said he likes Ford's loan because it is well collateralized and has an attractive spread. Citigroup, Goldman Sachs and JPMorgan lead the deal, which is priced at LIBOR plus 3%. Pricing on the term loan steps down to LIBOR plus 2 3/4% when Moody's Investors Service upgrades its corporate credit rating to B2. It is non-callable for two years and has call protection of 101 in the third year.

Ford's financing was originally launched in November as a five-year, $8 billion senior secured revolver, a $7 billion term loan "B" and $3 billion of unsecured capital market transactions (CIN, 12/1). It increased its revolver to $11.5 billion due to "overwhelming support by lenders," according to a filing with the Securities and Exchange Commission (12/8).

Loan-only credit default swap spreads widened 10 basis points to 227-232 after the term loan broke. A trader said a lot of commercial banks bought LCDS protection to hedge their large exposures. One dealer said he was surprised to see spreads widen because the market was expecting the opposite. He said the widening mirrored Ford's unsecured CDS, which widened 57 basis points to 583, according to Markit Group. Spreads widened after Ford's president of its Americas division, Mark Fields, said he expected the company's U.S. market share to stabilize at 11%, according to Markit. A spokesman confirmed Fields made the comments at a preview event for the North American International Auto Show last Tuesday. He clarified the 11% figure refers to Ford's retail sales as a percentage of total industry sales. He added the auto maker's U.S. market share for all car sales is 16% for 2006, but that this is expected to be closer to 14-15% in 2007 and 2008. He declined to comment on the trading of Ford's debt.

15 Dec 2006