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CAPITAL GOODS: SKF (SKFBSS Baa1/NR/BBB+): Par Event Speculation

CAPITAL GOODS
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Far from clear to us that an event of default could be argued successfully.

  • SKF bonds have been moving higher in recent sessions; we hear the bond docs are under scrutiny. SKF recently announced plans to spin off its Automotive division https://marketnews.com/capital-goods-skf-skfbss-baa1-nr-bbb-spin-off.
  • “If the Issuer ceases or threatens to cease to carry on the whole or a substantial part of its business” is an event of default in the bond docs. The 31s and 28s trade with 86 and 91 handles, so a par acceleration event is the idea here.
  • There is no hard definition for substantial but around 25% or more could be argued for. On a LTM basis Automotive represents 22% of assets, 30% of sales and 13% of adjusted operating profit. So, one out of three can be argued, but sales is clearly the weakest metric of the three.
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Far from clear to us that an event of default could be argued successfully.

  • SKF bonds have been moving higher in recent sessions; we hear the bond docs are under scrutiny. SKF recently announced plans to spin off its Automotive division https://marketnews.com/capital-goods-skf-skfbss-baa1-nr-bbb-spin-off.
  • “If the Issuer ceases or threatens to cease to carry on the whole or a substantial part of its business” is an event of default in the bond docs. The 31s and 28s trade with 86 and 91 handles, so a par acceleration event is the idea here.
  • There is no hard definition for substantial but around 25% or more could be argued for. On a LTM basis Automotive represents 22% of assets, 30% of sales and 13% of adjusted operating profit. So, one out of three can be argued, but sales is clearly the weakest metric of the three.