Following Fiat's announcement of a 20% drop in sales for March, London-based analysts say it is time to sell its bonds. Despite enjoying a massive spread tightening last month when Moody's Investors Service put Fiat on review for downgrade--its bonds tightened by 50 to 60 basis points--analysts expect the auto-maker to be downgraded one notch from Baa2 and its spreads to blow out. "It's time to get out," says Cyril Benayoun, an analyst at BNP Paribas. Much of Fiat's tightening to date has nothing to do with the credit's fundamentals, but has come on the back of general positive sentiment on the economic recovery, which caused spreads throughout the sector to contract, he adds.
Victoria Whitehead, an analyst at Bear Stearns, says a downgrade coupled with Moodys keeping them on continued negative watch could send spreads out anywhere between 100 to 150 basis points. Benayoun recommends buying Renault or General Motors instead. As of last Wednesday, Fiat's 5.5% of '06 was trading at 141 over swaps, whereas Renault's 5 1/8% of '06 was at 118 over, a differential which should be much greater, according to Benayoun.