Visteon Final Bond Recovery Price: 3 Cents On The Dollar

Market tests are useful as they best indicate just what is the real value of hundreds of billions of distressed securities stripped away from any unwarranted optimism and green shoot propaganda. Today's Visteon CDS Auction was just one such test. And if there was a way to grade the test, it would be an emphatic F: not so much for bankrupt Visteon which is already in the morgue, but for other comparable auto suppliers whose bonds and loans recently have seen overambitious PMs buying their debt as if every single credit instrument would be rolled into Taxpayer Capital LLC's Worthless Assets Fund. (One need only look at the stock price of LEA over the past 2 weeks to see the insanity going on with autosuppliers).

The final result: a jaw dropping 3 cent recovery on the Visteon CDS and 39 on the loans. I recently presented other auction clearing prices, which averaged about 10 for unsecured tranches. It is not surprising to see that the average price continues dropping aggressively: and this despite all the green shoots that the economy is experiencing, and despite Larry Kudlow's expectation for the recession ending in about a month.



Aside from the philosophical implications that the entire auto supply chain industry is basically insolvent if it were to be valued fairly, it is worth nothing that in this particular auction, it was Bank of America which almost single handedly took home the spoils, getting hit on $91 million worth of limit order at 3.375%: half the net open interest to sell of $180 million. Whether this was to cover prop exposure, or for clients, is unknown. However what is most amusing is Deutsche Bank's substantial interest... at 0.5 cents on the dollar.

For full details on the Visteon CDS auction, click here. Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
• 

Auto Supplier Shock Spreading, Now TRW

Last week it was Visteon, yesterday it was Lear, today it's TRW. The auto supplier whose secured credit facility has been on an unprecedented tear recently, filed an 8-K earlier announcing it will likely breach covenants, and not some time in 2013 (the same year the S&P is using for its fwd multiple calculation), but Q2! In other words, they have a mere 30 days before TRW will be the next auto supplier casualty. It is interesting that TRW management waited so long, before a) announcing just how bad things are and b) taking proactive steps to fix things. From the 8-K:

On June 2, 2009, TRW Automotive Holdings Corp. (the “Company”) announced that it has initiated the process with its bank group to amend its primary credit facility. In light of the current industry conditions, it is unlikely that the Company will be in compliance with the financial covenants of its existing credit facility at the end of the second quarter of 2009 and, therefore, is seeking to amend certain terms of its primary credit agreement to position the Company for future covenant compliance through the current downturn. The Company expects to complete the amendment process prior to the end of the second quarter 2009.

Recently TRW said it had fully drawn down its revolver, with utilization now sitting at $1.3 billion. The credit facility is $2.5 billion in total, underwritten by upgrade specialists Merrill Lynch/BofA and JPM. It will be interesting to see if the Merrill auto equities team takes a page out of the REIT book, and upgrades TRW equity to "Once In A Lifetime Dodecatuple Super Strong Buy", with a $100 price target, generating a short squeeze, doing a follow on, pocketing 10% of the equity offering and having management use the proceeds to pay down its credit facility. Stranger things have been seen in the market recently. Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
•