Tuesday, January 20, 2009

Leverage Behemoth Freescale Downgraded, Bonds Pounded

S&P, which lately seems to be paying its credit "analysts" at a rate of $1/word and has imposed a minimum quota of 10 downgrades a week, whacked LBO titan Freescale late on Friday with a downgrade of its corporate rating from B+ to B-, its secured loans from BB to B- and bonds from B- to CCC. In a sleuthing masterpiece report that would make Inspector Clouseau proud, S&P said it "expects Freescale's near- to intermediate-term operating prospects and related credit measures will be adversely impacted by the current economic environment" and that its "concentration in the automotive sector will result in sharply lower revenue in 2009 and possibly in 2010 and that lower revenue will hurt gross profit margins".

As the company stopped keeping track of its leverage after it reached about 10x EBITDA, bondholders can not be seriously hoping for much of a recovery, but even so the company's debt couldn't find a nickel bid in a market dominated by sellers. Benchmark 8.875% due 12/14 traded down to 28 from a level in the mid 40s last week. Adding insult to mark-to-market injury was the TL, which traded down from the low 60s to 55. CDS did as expected and widened to the basis equivalent of roughly 3300bps. All is good, however, for its PE sponsor club of Blackstone, Carlyle, TPG and Permira - according to sources their equity investment is still marked at par here and there. Sphere: Related Content
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