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DaimlerChrysler Prices Blow Out

15 Jan 2001

Five-year credit default swap spreads on DaimlerChrysler blew out last week to 160 basis points as the market waited for a multi-tranche bond from the auto manufacturer to be priced. The market had been nervous that the company would not be able to sell the bond at all, which would signal that the company could be in dire straits as it could not fund itself. But the car company successfully sold USD1 billion of five-year debt, USD1.5 billion of ten-year debt, USD1.5 billion of 30-year debt, EUR2.75 billion (USD2.58 billion) of three-year and GBP350 million (USD521 million) of six-year debt.

Richard Gillingham, head of credit derivatives at Bank Gesellschaft Berlin, said on Tuesday the price for protection fell off its 160bps peak as investors started selling protection on the name because prices looked comparatively rich—although auto names had widened, most were not as wide as DaimlerChrysler. By Thursday, as DW was going to press, five-year default swaps on the name were trading at 145bps. The typical notional sizes were between USD10-20 million.

Moody's Investors Service rates DaimlerChrysler A2 and Standard & Poor's rates it A. Both ratings agencies have the credit on negative outlook.

Maria Bissinger, analyst for DaimlerChrysler at Standard & Poor's in Frankfurt, said Chrysler has suffered sales and profitability problems since the spring, which led to a downgrade in December. Dieter Zetsche, who replaced James Holdon as president and ceo in November, has said restructuring plans would be set out in the first quarter. Bissinger said that if DaimlerChrysler has not turned things around by the middle of 2001 then S&P will downgrade the company again.

15 Jan 2001