The recent surge in Tenneco Automotive's bonds may be attributable to a perception that the company will be able to bring a high-yield deal to market to pay down part of its $800 million in outstanding term loan obligations, says Premila Peters, analyst at KDP Investment Advisors. Peters says that while earnings were strong in the latest quarter, company officials hinted at "exploring their options," which she interprets as an allusion to a possible deal. With the strong rally in the high-yield market, Peters believes Tenneco could price a senior deal to reduce amortization payments of $23 million per quarter on outstanding loans. The possible inability to meet those payments is among investors' biggest concerns with the credit, Peters says.
Tenneco's $500 million issue--the 11.625% notes of '09 (Caa1/CCC+)--jumped several points from 77.5 after its earnings call last month, and were at 87 last Monday. "Given how hot the primary market has become, no one is willing to dismiss the notion that even Tenneco can come to market," Peters says, alluding to the company's low rating from both major credit agencies.
Stephen Smart, analyst at ABN AMRO Asset Management, says his firm would consider buying a deal from Tenneco, as his portfolio managers believe the auto sector is due for a comeback, and it would likely take a 14% coupon to get a deal done. "Of course I'd take a look if they came with a 14% deal, we don't get too many of those anymore," he said.
A call to Mark McCollum, Tenneco cfo, was referred to Jane Ostrander, a company spokeswoman. She did not respond by press time.