Chapter 17 Martellini GM and Ford Bonds

Chapter 17 Martellini GM and Ford Bonds - MARKETBEAT Market...

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Unformatted text preview: MARKETBEAT Market Insight From WSJ.com Bond Investors Prepared for Worst Rom General Motors and Ford Car Cdmpanies’ thures New in Hands of Politicians BY DAVID GAFFEN or mansr years, General MottosCorp.andFmdMo~ torCo. were the bellwethers of the high-yield market. As two of the largest issuers of debt, thebondsofthe automanufac- turers were considered the in- dush-ial-comparwbenclmarks forthcstatus ofjunkfinancing. Though they still occupy a sizable section of the high- yield arena, the bonds are no longerthetlrzostwatcl'led.The},r are influential, however. And while the eulfiti" market and economists attempt to grasp the potential impact of a cata- strophic end for the auto com- panies, investors injunkbonds already have rendered their verdict on the auto makers. “morewfllbeapsychologh cal impact, and some disrup- FFPFfl-ir. "nfin- __-__,.._,.._ 5V5?” // .,__ ..,.._. tion, butthefactthatthecredits have been in trouble for so long won’t come as a surprise,” said Shelly Lombard, senior high-yield analyst at Gimme Credit. According to EDP mvesnnent Advisors, GM has $43.27 hillimi in serfiordebtofwhichfimfillionis senior secured debt. Ford has $28.46 billion in outstanding se- niordebtofwhichfibillionisse- nior secured debt. Together, the two account for about three-quar- ters of a percentage point ofthe lash-yield market. Add in their fi- nancing arms, and they account for more than 6% of the market. Trading in these bonds has been volatile, a veritable guessing game as investors speculate what will happen with the car compa- nies. The senior secured debt of GM due in 2013, which carries a coupon of 7.125%, lately traded at aboutZOcentsonthedollanforan Mondlillaren’twhattheyusedtobeandneitherarell'lelr bonds. Above. Mustangs being assembled in Dcarbcm, Mich, in 1966. implied yield (if-55%. Ford’s senior notes, which carry a 7.45% coupon. trade at 22 cents, or about a yield of 33.9%. “It’s basically investors betting on what shape the bailout would take, and the uncertaintyofthatis leading to further downward pres- sure,” said Kip Penniman, analyst at KDP. “We’re not talking about fundamental analysis anymore— we’re not dealing with an eco- nomic reality-based rational inves- tOr. We're dealing with politicians, at this point.” Mr. Penniman is referring to the current dog-and-pony show on Capitol Hill, where auto executives have for the postcoupieofdaysbeenplead- ing their case. Mr. Penniman said a restructuring plan that involves a debtor-in-posses- sion option is a viableoutcome for GM. (Ford is in better shape,asitpledgeditsownas- sets as collateral in mechange for financing in late 2006.) Read-the continuously updated look inside the markets, free saline at W r10*c98 A fldf - “jab-:M—r - .l_.__ —, awe—r. -.—. — - ...
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