A Deutsche Bank-led sale on behalf of Exide Technologies tanked last week, plummeting an additional 10 points to bring it 25 points below where it was launched just two months ago. The precipitous drop is unusual for a Deutsche Bank-led high-yield credit, because according to a recent study by junk researcher Marty Fridson, ceo of FridsonVision, Deutsche Bank's deals performed better than those from any other underwriter in the first four weeks after they were issued last quarter.
Poor earnings and subsequent bank loan covenant violations fueled the drop, with the automotive and industrial battery company's 10 1/2s of '13 sinking to around 74 mid-week from 85 at the start of the week. The earnings miss spurred chatter the company may be forced to return to bankruptcy, according to dealers who noted the company's loan covenants required it to produce quarterly earnings before interest, taxation, depreciation and amortization of $130 million and it will only record EBITDA of $100-107 million. Exide's stock price also plummeted from around $11 to $5.38 a share as of last Friday morning and Moody's Investors Service placed the Caa1-rated credit on review for possible downgrade.
Timothy Gargaro, cfo of Exide, and David Flannery, head of high-yield capital markets at Deutsche Bank, did not return calls by press time. Ted Meyer, spokesman for Deutsche Bank, declined comment.
Exide's problems, along with other auto-suppliers such as Collins & Aikman, which filed for bankruptcy last week, are also sector driven. One investor said given the turmoil caused by General Motors and Ford Motor Co.'s troubles as well as the auto suppliers' woes, any event not surprisingly causes the market to panic.
"It could easily be a Chapter 22," quipped one high-yield portfolio manager, meaning Exide--which recently emerged from bankruptcy--could have to file a second Chapter 11. Yet Ron Bringewatt, managing director of research at New York distressed dealer The Seaport Group, said while bankruptcy certainly seems possible, the bonds may be oversold on bondholders' ire at the earnings miss so soon after debt issuance.
At the time it was sold, Exide's deal struggled to find takers even in the supply-starved and yield-hungry environment, with a $60 million convertible note piece carved from the original $350 million high-yield offering to complete the sale (BW, 3/14).
