Lower production volumes at Ford Motor Co. and DaimlerChrysler have led KDP Investment Advisors to lower its estimated recoveries on Dura Automotive Systems' senior notes. The corporate bond research firm lowered its estimated recovery value on the auto suppliers' senior notes to 35-41 from 48-55. It estimates the sub notes will receive little, if any, recovery value in a workout.
KDP reduced its estimates based upon its poor outlook for domestic OEM production levels and its belief that Dura will continue to lose business until it stabilizes its financial situation through a Chapter 11 reorganization. Dura has not filed for bankruptcy, but KDP expects this to happen in the next couple of weeks. It lowered its estimate of Dura's EBITDA when it exits bankruptcy to $120-130 million from $140-150 million and reduced its estimate of the cash the company will build during two years of bankruptcy protection to $74 million from $90-100 million.
KDP predicts Dura's bonds could experience a short covering after it files for bankruptcy. It expects the senior notes to benefit from a technical rally driven by short-covering and, to a lesser extent, demand created from the credit default swap market as participants seek to cover positions. At press time, Dura's 8 5/8% '12 senior notes were trading at 37 3/4, while its 9% '09 notes were at 4. A call to a Dura spokesman was not returned.