this no better. <<US Corp Bonds-Jolted by PG&E bankruptcy;Earnings woes
By Nancy Leinfuss
NEW YORK, April 6 (Reuters) - Corporate bonds weakened on Friday amid heightened concerns over the financial health of U.S. firms and a surprising bankruptcy filing by Pacific Gas & Electric Co., one of the largest ever by a U.S. utility.
"We started off with a flat tone but as the day progressed and we heard the bankruptcy news we weakend along with equities," said one trader.
Spreads, the yield difference between corporate bonds and comparable maturity U.S. Treasuries, were quoted two to five basis points wider, depending on the sector, traders said.
The 10-year U.S. Treasury note rose 22/32, while its yield fell to 4.88 percent.
Junk bonds, unchanged earlier, were also dragged lower in afternoon trade, market players said.
PACIFIC GAS & ELECTRIC FILES FOR BANKRUPTCY
Pacific Gas & Electric Co., California's largest utility, said it filed for voluntary bankruptcy protection on Friday, citing the failure of the political process to resolve the state's power crisis.
"The regulatory and political processes have failed us, and now we are turning to the court," said Robert Glynn, chairman of PG&E Corp and Pacific G&E, in a statement.
The filing for bankruptcy reorganization was disclosed less than 18 hours after California Gov. Gray Davis oroposed his own plan to help rescue Pacific G&E and the state's second-largest investor-owned utility, Southern California Edison.
"This indicates there's been zero progress over the last nine months. I would imagine California's situation gets worse for the consumers rather than better, considering the lack of progress in the last nine months and this filing," said Douglas Christopher, analyst at Crowell Weedon & Co.
Pacific G&E, which serves 13 million Californians, had piled up about $9 billion in debts because its wholesale prices had soared, yet a rate freeze imposed under California's 1996 utility deregulation capped retail prices. The state's power shortage has resulted this year in four rolling blackouts.
"It's clear there's something irreversible here. Do you think PG&E would have declared bankruptcy if there was light at the end of the tunnel? I don't, and the proof is in the pudding, it's going to keep getting worse. When we hit the summer, the $9 billion you see unrecovered (in PG&E debt), it's going to turn into $15 or $20 billion. It just keeps growing, and there's no solution."
Trading was halted in PG&E shares before the filing. The shares last traded on Friday at $11.36, down 2 cents. They had fallen 46 percent in the last year. Its debt fell two points.
Its 7.875 percent first mortgage notes due 2002 were quoted at 86 cents on the dollar, while its 6.25 percent notes due 2003 fell to 71 cents on the dollar. Late Friday, Fitch cut PG&E's first mortgage notes to DDD from B-minus.
GM OUTLOOK NEGATIVE
General Motors Corp.'s <GM.N> long-term rating outlook was revised on Friday to negative from stable by Moody's Investors Service, which worried about the world's largest automaker's eroding competitive position in a weakened U.S. auto sector.
Moody's said GM faces "near-term" challenges in addressing "the continuing erosion in its domestic market share position, intensifying competition from German and Japanese manufacturers in the U.S. truck and SUV (sport-utility vehicle) markets, and the severe weakness in its international operations."
To the extent GM cannot effectively address these concerns, Moody's said, its "operating performance, cash generation, and debt protection measures would be lower than we originally anticipated during any slowdown in the U.S. automotive industry."
The credit rating agency also affirmed its "A2" long-term rating, its sixth-highest investment grade, and top-notch "Prime-1" short-term rating for GM and its General Motors Acceptance Corp. (GMAC) financing arm. The actions affect about $130 billion of debt.
GMAC'S 7.25 notes due 2011 widened four basis points to a 201 basis points bid, 198 basis points offer, to yield about 6.89 percent, traders said. Its shares closed Friday on the New York Stock Exchange at $52.58, down 85 cents, or 1.6 percent.
A spokeswoman for GM, Catherine Dunsby, said "we are disappointed with the action taken by Moody's today. The issues they raised are certainly on our radar screen and we are already well into the process of taking action."
MOTOROLA DENIES LIQUIDITY PROBLEMS,BONDS WIDEN
Motorola Inc. <MOT.N>, the world's second-largest mobile phone maker, on Friday denied a published report that it was facing serious liquidity problems after shares of the company's stock fell to its lowest level in eight years.
"Motorola today is financially sound. Any suggestion or erroneous report that Motorola faces a serious liquidity problem is simply not correct and is not supported by fact," said Bob Growney, Motorola president and chief operating officer, said.
At the end of the first-quarter this year, Motorola said it had cash and cash equivalents of $4.4 billion and $4.1 billion of outstanding commercial paper. Through April 6, 2001, Motorola had more than $4.5 billion in cash and cash equivalents and outstanding commercial paper had been reduced to $3.1 billion.
Over the last week, Motorola spreads have ballooned from levels seen in the low 300 basis points level to be offered on Friday at a spread of 420 basis points over Treasuries, of which, traders said, 60-75 basis points of the widening took place on Friday. >>
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