Five-year credit-default swap spreads on Delphi Corp. spiked to 2,900 basis points early this week, from 2,100 bps Monday, keeping the credit center stage yet again for many playters. Traders said the corporate was the most heavily traded and most volatile name this week, on continued speculation over its financial troubles. CDS on the name traded at 30–35 bps upfront, as market players, mostly hedge funds and institutional prop desks, bought and sold protection.
All three ratings agencies downgraded Delphi Aug. 5: Standard & Poor's to CCC+ from B+, Fitch Ratings to CCC from B and Moody's Investors Service to Caa1 from B2. Since then, Delphi has continued closed negotiations over legacy costs with trade unions and General Motors Corp., its former parent and biggest customer.
Securities and Exchange Commission reporting guidelines allow a 45-day grace period from the end of the quarter for Delphi to release financial statements, Edwin Weist, senior analyst at Moody's in Jersey City. However, ahead of that deadline on Oct. 17 a much stricter U.S. bankruptcy takes effect.
Delphi is expected to declare bankruptcy before Oct. 17 if negotiations fail. Traders said the risk of bankruptcy is already priced in to the credit protection and a Chapter 11 filing from Delphi would not have a dramatic impact on the markets.
