Five-year protection on DaimlerChrysler widened 20 basis points last week to 145 basis points/155bps as traders prepared for today's release of the company's results. John McEvoy, co-founder of creditex in New York, said demand for credit protection on the name spiked last week. He estimated at least twice as much protection in the name traded as in an average week, with demand originating with bank prop traders and bond holders hedging their positions.
The demand spiked because DaimlerChrysler is holding a public meeting today to discuss its annual results and its restructuring plans, which should end speculation about what the company is going to do with its U.S. operations.
Arndt Ellinghorst, automotive analyst at West LB Panmure in Düsseldorf, said, "The big question is whether DaimlerChrysler can convince analysts that their restructuring plans will work quickly and will not be a short-term fix." Ellinghorst is looking for evidence that DaimlerChrysler can reduce its breakeven level. He discounts market rumors suggesting the company may sell off its Chrsyler business, noting that the parent has invested too much capital to scale back to being a national, rather than multi-national, manufacturer.
Standard & Poor's rates DaimlerChrysler single-A and Moody's Investors Service rates it A2. Both rating agencies have the car manufacturer on negative outlook.
