Rating: A3/BBB+
Amount: $2.5bn
Maturity: June 4, 2008
Issue price: 99.657
Coupon: 4.05% (originally 3.75%)
Spread at re-offer: 179bp over the 2.625% May 2008 UST (originally
149bp)
Launched: Thursday June 5
Joint books: Bank of America, Barclays Capital, Deutsche Bank
Market appraisal:
"...this relaunch demonstrates the lack of clarity of information coming from the issuer. That was a problem for the issuer a few years ago after the merger was first announced, it clearly still is a problem and they have been punished for it by having to jack up the coupon by 30bp.
This company is a can of worms."
"...investors will want to buy this deal with the extra 30bp on the coupon because they are already on the hook for it. If the company cancelled this deal they would be screwing everyone who had made room in their portfolio for the deal or had put on hedges.
That said, everyone knew there is pressure on them and the car industry generally. The original deal came as a concession to the market. Now they have a credibility problem; they've shown that the right side of their brain isn't talking to the left side and they are trading cheaper to reflect that."
"This was clearly a difficult situation for the company and the 30bp step-up on the coupon is generous. Their January 2008s were trading around 110bp before the initial deal was priced last week, and now they've re-launched it at a spread of 179bp.
So when you look at it like that you can see how much investors have benefited if you will, from the new transaction and the negative earnings news that came out."
" ... this was a communication error internally and not an attempt by the company to be deceitful.
The board's initial thought was to pull the trade and not at any point did the company say it would shove this thing down investors' necks without some coupon step-up. They did the right thing by the market to adjust the coupon. I don't think there will be any lasting negative impact on their spreads from this sequence of events. If they'd done anything that was viewed as screwing investors, then it would be a different matter."
"... they repriced at levels that clearly made all the investors content. The only thing is that they pulled it and then re-launched it and it would have been smarter if they hadn't pulled it and just announced they were stepping up the coupon. "
"...the interesting thing here is that investors have decided to overlook the fact that someone screwed up big-time here, because we are in a no yield environment and this is a bond that has yield."
"A year ago this deal would never have been able to come again. The market would have shut the issuer out and spreads would have blown out 100bp to 200bp because of the whole issue of corporate governance. But this year it's the other side of the coin.
People feel there are not enough bonds and not enough yield and their attitude is 'if you give me enough yield I am just about ready to take anything'."
