The additional $550 million J.P. Morgan Chase tossed to Federal-Mogul to help pay for asbestos liability claims split up the seniority of existing debt, sparking trades at levels far above where the credit had been lolling. A $15 million piece of the $1.75 billion credit facility changed hands at about 60 Thursday, after $3 million was traded Wednesday at 55. Those numbers are up considerably from levels just two weeks ago, when the paper was bid at 38.
The new Morgan Chase commitment puts a new spin on the old debt, which was pari passu with the bonds. The structure is now three-tiered, one dealer explained. "The $550 million is number one, the [existing] bank debt is two, and the bonds are three. Either way the bank debt is worth more now," he said. A company spokeswoman confirmed the three-tiered structure, but declined to comment further, instead referring to a press release the company had issued earlier in the week. A bank spokeswoman declined to comment.
One market player noted the paper's upswing in recent weeks. "If you asked someone last Monday they'd offer 40 for it, and the week before they'd offer 30. No sellers are interested in it right now, so it will continue to [be quoted] up."
The Southfield, Mich.-based company makes automotive parts, but is embroiled in asbestos liability litigation. One analyst involved in a conference call last week said he is skeptical that the additional money will make a difference for the company. But Lisa Matalon, analyst at Moody's Investors Service, said the latest turn of events will buy the company some time. "It gives them some time to get the company's house in order. They haven't integrated their acquisitions, and they have problems caused by too many acquisitions," she said. "The banks are looking to get collateral to sit ahead of the bonds, so it's not pari passu." Federal-Mogul reportedly has $340 million in asbestos claims for the upcoming year.