European loan sources described the uncertainty surrounding the dairy producer Parmalat as a "wait-and-see" situation. While no bank debt levels are quoted, the company's bonds and credit default swaps have been changing hands actively. The company has fallen from investment-grade land and "it's fully in the distressed world," said one dealer. Parmalat's bank debt is largely comprised of relationship lenders and bilateral lines, said market sources. Whether or not lenders will ultimately decide to sell down some of their exposure remains to be seen. While the market is trying to get its hands around the situation, one dealer noted that there is too much risk to try to put a bid on the paper at this time.
After Standard & Poor's downgraded Parmalat's main operating subsidiary from A3 to B to C over the course of last week, the rating agency hosted a conference call during which Hughes De La Presle , an S&P analyst, explained that the decision to downgrade the company came with the clear and present risk of default. He said key drivers of the decision revolve around Parmalat's access to liquidity and ability to service debt maturing before year's end. Liquidity is partly dependent on the support of the company's banks. "Currently, Parmalat has approximately E 1.2 billion of drawn and committed bank debt, which is provided essentially by Italian banks. In the current turmoil, we need to make sure that banks will not withdraw their support," said De La Presle.
European loan market sources said there are many factors lending to the uncertainty. Recent issues plaguing the company include Parmalat's difficulty in liquidating its $590 million investment in a fund called Epicurum and the company's decision to take full advantage of the grace period allowed for the repayment of a E 150 million bond issue, which was set to mature last Monday. "Everyone thought they were cash rich," and now that might not be the case, explained a buysider. Company officials could not be reached by press time.