The troubles at German auto supplier Schefenacker are having a knock-on effect on Italian-based auto supplier, Teksid Aluminum, which has seen its bonds fall 10 points over the past couple of weeks. A trader said the problems at Schefenacker, which saw its bonds tumble 13-14 points last week, is driving investors to reassess their portfolios in other auto suppliers. He cited Teksid as a company that has seen its debt fall in tandem with Schefenacker's as investors' concerns over the future of the European auto supply sector continues to deepen.
Moody's Investors Service downgraded Schefenacker's corporate family rating to Caa1 from B2 and the rating on the company's senior subordinated notes to Caa3 from Caa1. The downgrade was partly triggered by uncertainty over whether it can meet financial covenants in its loan agreements, said Christian Hendker, a Moody's analyst. He said the company may breach EBITDA to interest coverage covenants in the fourth quarter. Schefenacker has to fulfill e80 million of interest payments, which it is not likely to meet, said Hendker. "There is a threat they might default within the next month," he said. A default on the loan agreement would trigger a cross default on the bonds, he added.
Teksid's 11 3/8% '11 bonds have fallen three points to 64-67 in the past couple of days, rounding off a 10 point drop in the past three weeks. Teksid, which has a similar business profile to Schefenacker, makes aluminum engine castings for the auto industry. "People are getting nervous about auto parts in general. Hedge funds are reviewing what is in their portfolio. They are taking a more reasonable view of the value of these companies' bonds," said a trader. A call to Massimiliano Chiara, Teksid's finance director, was not returned.
Schefenacker's 9 1/2% '14 notes fell to 46-48 from the low 60s. Its bank debt fell a point to 99-101. The trader said investors are losing confidence in the company's restructuring, which is taking longer than expected. Its bonds dropped eight points to 81-82 three weeks ago after it posted a e10.6 million net loss in the second quarter (CIN, 8/21) and announced it would miss its EBITDA forecasts. The net loss was partly driven by a delay in cost reductions related to its restructuring. A company spokesman did not return a call.