INEOS, Georgia Gulf, Chemtura bond prices plunge

Bond markets are a good place to look if you want to understand the outlook for major companies in the chemical industry. A key market is in ‘credit default swaps’ (CDS), which offer insurance against the possibility that a company might default.
The way they work is that the owner of a bond, or a speculator, can buy a CDS to insure against the possibility that a company might default over the next 5 years. Today, Bloomberg is suggesting that “trading in their bonds shows” that “Ineos Group Holdings, Georgia Gulf Corp. and Chemtura Corp. are crashing on a mountain of takeover debt and may follow Lyondell Chemical Co. into bankruptcy”.
Bloomberg reports that “credit-default swap traders are demanding €8.2m upfront plus €500k a year to protect against default on €10m of Ineos bonds for five years”. It adds that “the upfront cost soared from €4.8m two months ago. A year ago, it was €716,000 a year with no upfront payment”. Bloomberg’s conclusion is that this latest trading in INEOS “credit derivatives priced in almost certain odds the company will default”.
Bloomberg also notes that Georgia Gulf’s 9.5% bonds due in 2014 were trading at 28c on the dollar, to yield 45.8%. It says CDS buyers for Chemtura are having to pay $5m upfront and $500k a year to protect $10m of debt for 5 years. Whilst online news service ‘Capital Structures’ (CS) says INEOS reported an operating loss of €301.6m for November, and an operating profit year to date of €361.5m versus a budget of €1.35bn.
CS also says INEOS is seeking “new equity from 3rd party investors”, and that an “asset sale process is ongoing”. They add that “senior management has visited the Middle East as part of this process and has plans to return there”. CS claims trade sales had earlier been discussed for two businesses at prices of c$1.5bn and c$1bn, but that “deteriorating conditions in the chemical sector made achieving fair value even harder”.

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