Wednesday, April 8, 2009

Why The Upcoming Porsche Refi Could Cause A Spike In Its Risk Profile

One of the more notable market rumors from yesterday was Porsche's attempt to raise an additional €2.5 billion on top of the €10 billion it managed to scrape together in the eleventh hour at the end of March, the failure of which would have resulted in a technical default. Allegedly, the €2.5 billion will be raised at a spread of 325 over LIBOR, a far cry from the 200 bps the company had been hoping on for the entire €12.5 refi earlier on. Both the core and the add on portion of the loan contain pricing step ups to encourage refi participation and to obtain a credit rating, as well as provide Volkswagen shares as security on the €10 billion loan.

Porsche expects to obtain a rating at the end of May, at which point it will likely immediately refi the €6 billion portion of the loan which has a 1 year maturity, with new bonds. Additionally, the VOW stock collateral will fall way once the company is rated.

There is little guarantee the company will be able to access the bond market in May, if at all, especially considering the extremely fragmented nature of its loan syndicate which will likely be the same underwriters on any upcoming bond issues, and consists of a who's who of European distressed banks: Barclays Capital, Commerzbank, LBBW, Deutsche Bank, UBS, Credit Suisse, Santander, BayernLB, BNP Paribas, Calyon, UniCredit/HVB, Helaba, Intesa, WestLB and DZ-Bank. As current lenders and potential future bond holders evaluate the risk profile of the company, it is likely that many will establish preemptive basis trades to protect against a possible downturn in the automaker, by purchasing CDS, which over the past 4 months have been surprisingly resilient in the face of the total obliteration of all other auto companies.

In the meantime, the company is still reveling in the huge cash shortfall it generated from the Volkswagen short squeeze, although the longevity of the cash buffer is questionable, especially if the premium segment of the car space becomes more and more adversely impacted by the spreading recession.

disclaimer: no position in porsche securities. Sphere: Related Content
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