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CAPITAL GOODS: SKF (SKFBSS Baa1/NR/BBB+): Consent Solicitation Aftermath

CAPITAL GOODS
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  • SKF’s move last week to seek consent solicitation triggered further tightening, with the 31s almost 60bp tighter post announcement.
  • SKF’s position is that no event of default occurred, and it described the solicitation as a “matter of prudence”.
  • It’s an interesting case study in game theory; by seeking consent it has emboldened the view that the planned spinoff will allow bondholders to claim an event of default. This contrasts with Essity who consistently rejected claims and are headed to the courts.
  • We have seen low probability of a successful argument for default here, with 22% of assets, 30% of sales and 13% of adjusted operating profit affected, against language of “substantial” looking ambiguous at best. If little harm is done it could be tough to argue through that ambiguity.

  • While an understandable motivation, it’s hard to view this as anything other than a misstep by SKF; they have offered 25c for a change that would take the bonds several points lower leaving bondholders with no incentive to accept.

    SKFBSS 12
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  • SKF’s move last week to seek consent solicitation triggered further tightening, with the 31s almost 60bp tighter post announcement.
  • SKF’s position is that no event of default occurred, and it described the solicitation as a “matter of prudence”.
  • It’s an interesting case study in game theory; by seeking consent it has emboldened the view that the planned spinoff will allow bondholders to claim an event of default. This contrasts with Essity who consistently rejected claims and are headed to the courts.
  • We have seen low probability of a successful argument for default here, with 22% of assets, 30% of sales and 13% of adjusted operating profit affected, against language of “substantial” looking ambiguous at best. If little harm is done it could be tough to argue through that ambiguity.

  • While an understandable motivation, it’s hard to view this as anything other than a misstep by SKF; they have offered 25c for a change that would take the bonds several points lower leaving bondholders with no incentive to accept.

    SKFBSS 12