Auto woes deepen as Edscha trades down

Clouds continue to gather over the European automotive sector as, for a second week, vehicle components manufacturer Edscha took a battering in the secondary markets following a sharp drop on poor trading results. The B/C tranches are entering their second week below 98, with the mezzanine trading off as far as the 95s. Judging by the amount of paper offered compared with the lack of bids, pricing could have further to fall.

One trader said the punishment was meted out largely as a result of the speed with which the name had underperformed its forecasts. Only three months have passed since arranger HVB completed the €537m recapitalisation. While there is no suggestion that Edscha is near a breach of covenants, the weak profits compare poorly with the company’s leverage of 4x total, 2.8x senior.

The recap allowed sponsor Carlyle to withdraw €60m in shareholder loans, leaving investors to bear a larger slice of the pain. Edscha joins an increasingly long list of struggling automotive sector names, including Honsel and Duerr. The recent weak consumer appetite in the US has been cited as a key factor in the sector’s recent woes, which has led to widespread price-cutting to sustain demand.

Nordwind Capital and supporting financier Commerzbank will be only too aware of the sector’s issues in structuring their €110m facility supporting the buyout of Schwaebische Huettenwerke (SHW Automotive), which is due to be launched in the primary market this week.