Federal-Mogul's bank debt softened to a bid-offer spread of 50-52 last week, coming back about a point after a high two weeks ago of 52 1/2-53. No trades were reported, and dealers who chatted optimistically two weeks ago about the bankruptcy protection were more cautious last week, saying the restructuring may be more drawn out than originally thought. "The market just stinks right now, and people are concerned that it could take longer for the company to get out of Chapter 11," a dealer said. "Their core business is hurting at the same time [asbestos] liabilities are hurting them." Another market player, trying to explain the work ahead for Federal-Mogul, put it another way. "It's like [Austin Powers nemesis] Fat Bastard trying to run uphill against Jesse Owens," he said. The Southfield, Mich.-based company manufactures car parts. Calls to G. Michael Lynch, cfo, were referred to spokesman Jim Fisher who declined to comment.
Lisa Matalon, who covers Federal-Mogul for Moody's Investors Service, notes that the bankruptcy restructuring will be complex because of the asbestos litigation, significant creditor classes and large overall size. "It's a big bankruptcy, not a pre-packaged bankruptcy. The court must work with management and professional advisors to assess the anticipated level of future asbestos claims and determine the enforceability of various insurance policies, which is a very hazy issue," she explained. "This will add some time onto bankruptcy aside from the fact that there remains significant operational issues to be addressed." On the plus side, the filing gives the company plenty of breathing room, Matalon added. "This will allow them to get a fresh start," she said, noting that most of the large claimants have already filed.
Two weeks ago, the company announced that it may take years, instead of months, for it to pull out of Chapter 11 (LMW, 10/7).The company has also felt the effects of an ailing auto parts sector, in part because better quality car equipment reduces demand in the after market. Federal-Mogul is seeking $675 million in debtor-in-possession financing, led by J.P. Morgan.