The cost of insuring US automaker Ford Motor Co's debt against default held steady on Friday, after the US automaker swung to a massive first-quarter loss as it took $1.65 billion in charges for job cuts, plant closings and other restructuring-related actions.
Ford, which is closing 14 plants and cutting up to 30,000 factory jobs in North America, said its first-quarter net loss was $1.19 billion, or 64 cents a share, compared with a profit of $1.21 billion, or 60 cents a share, a year ago.
But five-year credit default swaps on Ford's financing arm Ford Motor Credit were unchanged, bid at 475 basis points, a trader said.
"There was both good and bad news in these results, which is why it's unchanged. Nothing really surprising," he said. The quarterly results were Ford's first since the automaker announced its restructuring plan, dubbed the "Way Forward".
"We would expect Ford to be lowered to the single B category later this year, given poor product momentum, ongoing sales decline (especially in a rising oil price environment), which continue to lead to production cuts and additional cash burn," Dresdner Kleinwort Wasserstein analysts wrote in a note.
On Thursday, rival General Motors' results also produced no major surprises.
Both companies are struggling with high fixed costs for wages and benefits and a cut in their credit ratings last year to "junk" status.
Ford expects to take a total of $3.4 billion in pretax charges for the full year for its restructuring. Worries about a debt-heavy buyout of French media and broadcasting equipment company Thomson continued to haunt the company on Friday.
The cost of insuring Thomson's debt against default rose on Friday morning, after a media report on Thursday that Thomson Chairman and Chief Executive Fran Dangeard was working on a plan to delist Thomson through a leveraged buyout (LBO).
Five-year credit default swaps on Thomson rose 10 basis points on Friday morning, settling at 85 basis points, a second trader said.
Citing people familiar with Dangeard's thinking, Dow Jones news wires reported that he had asked US private equity firm Silver Lake Partners to lead the deal. LBOs reduce a firm's creditworthiness because the buyer saddles the target's balance sheet with debt to pay for the take-over.
The report also cited a source as saying that investment funds Blackstone Group, Providence Equity Partners and Apax Partners & Co were among the funds that had been approached to take part in the LBO, as they were known to seek investment opportunities in technology companies.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 46.7 basis points more than similarly dated government bonds at 1447 GMT, 0.1 basis points lower on the day.
ITRAXX TIGHTER: The iTraxx Crossover index, made up largely of high-yield credits, tightened around 4 basis points on Friday to 248 basis points, a trader said, bringing the tightening for the week to about 22 basis points. The trader said he thought the current rally was close to ending. "The market moves in mysterious ways, but it feels like the last squeeze to me," he said.
Even with risk-free yields on 10-year Treasuries above 5 percent, there has been continued selling of protection on high-yield names this week, and this must be reversed at some point, the trader said.
"I think we're very, very close to that," he said.
Next week, too, is set to bring a large volume of supply for the high-yield market, as bonds backing the leveraged buyouts of Danish cleaning group ISS and telecoms operator TDC are set for launch.
ISS is selling 975 million euros worth of bonds via Citigroup and Goldman Sachs, while TDC will sell 2.031 billion euros worth of bonds in dollars and euros via Deutsche Bank, J.P. Morgan, Barclays Capital, Credit Suisse, and Royal Bank of Scotland.
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