What's Spooking Auto Supplier CDS?

Or maybe the correct question is "what wasn't" especially for the past 3 months... I touched earlier upon the pain that is still to be unleashed upon the autosuppliers when I discussed the Visteon CDS auction. However, it seems the credit market is already on top of this.

A brief observation of the CDS (and to an extent the equity) levels of TRW and American Axle (AXL) indicates that over the past week something has really spooked longs in the names. While TRW CDS has almost doubled from just under 700 bps to 1,100 bps (in running spread), the CDS of American Axle has simply exploded from under 3,000 bps (what is that in pts up: about 50?) to over 5,000 bps in spread (mid 60's).

At the same time equities seem to maintain option value in case the Administration changes its mind once again, and this time Obama decided to actually provide the $10 billion in bailout capitla requested. Of course, absent even the glimmer of bailout capital hope, the CDS on both names would promptly hit the stratosphere while equities would get pummeled. And once the auto supplier dominoes start falling, then start looking for the real secondary derivatives: which companies will be next in line as a result of the D-3 bankruptcies?

Comments

[TeresaE:]

The "pain" has been unleashed for over a decade.

This is just one more hit in a long line.

GM & Chrysler ramped up production at American suppliers starting in March. Which is how I KNEW that even with all the talk of "not filing" that the bankruptcies are coming.

And the government has already pledged $4 billion for suppliers and is letting GM choose the "winners" while the rest of their suppliers get piles of paperwork and screwed.

Just more green shoots and nicely done again.

Jun 24 08:32 AM