Pieces of Parmalat bank debt began to eek out as the company continued to avoid one default trigger after another. Early last week, a loan linked to a Parmalat Brazilian entity traded in the low 70s. Then, a sizable block of a credit facility held at the Parmalat Spa level is believed to have traded at levels lower than the high 40s to low 50s range, where the bonds were changing hands last week. The exact size of the block could not be determined. Not only is the tenor of that piece longer, but the facility is unsecured, explained one trader. If the company defaults, those claims would be pari passu with the bonds. But because the bank debt carries a smaller interest rate, the accrued interest would not be as high, he noted.
It is unclear who holds the claims to Parmalat's bank debt. "You have to assume that it is held by Italian banks," noted one European loan market source. Parmalat has a number of bilateral bank debt lines, which trade at different levels. Generalizations on the levels cannot be made, noted one trader. Investors need to determine at what operating level the bank debt resides and whether the claims are senior to the bonds, etc., he added.
Parmalat avoided defaulting last week after the company repaid its E150 million bond issued by its subsidiary, Parmalat Finance Corp. The company has also extended negotiations regarding its required purchase of 18.18% of its Brazilian subsidiary, Parmalat Empreendimentos e Administracao. The subsidiary is owned by North American institutional investors and the purchase of the minority stake would require an investment of about $400 million. The transaction was slated to be completed on Dec. 17 and Dec. 22. Calls to the company's investor relations spokeswoman were not returned by press time.