S&P's Distressed Bond Tender Spec Default Crusade: Hawker Is Latest Victim

Textron (TXT) private-jet competitor Hawker Beechcraft was the latest casualty of S&P's ongoing foray into subjective default proclamations, when the rating agency decided to monkeyhammer the company from a B- to a CC rating as a result of Hawker's recent tender offer for its own debt at distressed prices. Furthermore, as in the case of Hovnanian (HOV), which Zero Hedge discussed previously, S&P will downgrade the company to Speculative Default as soon as the tender clears on May 18. In other words, more bad news for companies who are planning on pursuing distressed debt tenders despite tax benefits afforded to them.

S&P had this to say about the 2007 Goldman Sachs (GS) and Onex Partners LBO:

Hawker Beechcraft announced a tender offer to purchase a portion of its unsecured notes at values substantially below par.

- Under our criteria, this is a distressed buyback which we view as a partial restructuring and, accordingly, tantamount to a default.

- We are lowering our corporate credit rating to "CC" from "B-" and placing it on CreditWatch with negative.

- We expect to lower the corporate credit rating to SD (Selective Default) and the issue-level rating on the notes to "D" on May 18, 2009, the early tenderdate.

"The downgrades follow the company's announcement that it is offering to purchase for cash a portion of its senior fixed-rate notes due 2015, senior PIK election notes due 2015, and subordinated notes due 2007 at values substantially below par for an aggregate purchase price of up to $100 million," said Standard & Poor's credit analyst Roman Szuper. The secured debt is not affected by the tender offer, which expires on 2 June, 2009.

With rolling SD downgrades becoming the norm, the impact on the holdings of whatever remaining CDOs are left will only get more pronounced as forced selling picks up again per the ratings agencies' methodology of putting virtually any company that attempts a coercive subpar debt exchange.

Comments

[Sellputs:]

The ratings agencys are next in investigations, they must be reworked... they were in the games.

May 09 09:19 PM

[BoneYard:]

S&P using the SD rating is appropriate - to those who tender. If bonds are not tendered and continue to pay an investor what is owed to them and continue to fulfill the terms of the indenture is there a default? SD is a convenience. How are we supposed to take the ratings seriously (nevermind that the same people who partially faulted them for the current debacle now use them as a criteria for inclusion into government programs)?

May 10 10:18 PM

[User 305589:]

shut down moody's and s&p immediately. they are worse than useless, they are parasites and a big part of the problem, not of the solution.

May 11 07:16 AM