Federal-Mogul's bank debt traded up three points early last week to 58 in a $5 million trade, despite predictions in the market that a "buy now" push will further depress the sector down the road. While some said they expect a quick bankruptcy exit and a strong recovery for the auto sector, others said zero-percent financing packages will hurt future sales. Calls to Mike Lynch, cfo, were referred to spokeswoman Kim Welch and were not returned.
One dealer predicted limited rebound in the coming year. "The problem with zero percent financing is you're causing all the people out there who were potentially in the market to buy a car to buy one now, rather than wait until spring, which would make sales more even," he said. "Once they eliminate the zero-percent financing, sales will drop off. Unless there's a significant economic rebound, there's going to be no run up on the market. That could hurt the auto names."
When Federal-Mogul filed for bankruptcy in late October, market watchers predicted the bankruptcy reorganization would be among the most complicated. Lisa Matalon, analyst at Moody's Investors Service, noted at the time that the company must sort through its asbestos litigation. The company itself has also announced that its reorganization could take years, rather than the months it had originally expected. The company has $675 million debtor-in-possession financing from J.P. Morgan.