Euro-denominated bonds of General Motors Corp fell on Monday as auto parts maker Delphi Corp, spun off from the auto giant in 1999, posted a second quarter loss and said it may have to file for bankruptcy. Bonds of GM, a key customer for Delphi, had already suffered on Friday as the parts company saw its credit ratings slashed. Analysts say GM may have to shoulder some of the financial burden Delphi faces.
"The Delphi news is a useful reminder that the risk of further credit deterioration at the likes of GM has not gone away," said analysts at Deutsche Bank in a note to clients.
They noted that Delphi was rated in investment-grade territory by Standard & Poor's, at BBB-, as recently as December 2004. The ratings agency on Friday cut the company's rating three notches to CCC+ from B+.
GM's 8.375 percent euro bond due in July 2033 dropped a couple of points, bid at 83 percent of face value, a London autos trader said.
"GM paper is down a couple of points but the flows are very thin," the trader added.
Delphi, the largest US automotive parts supplier, said it expected North American vehicle production to continue to decline in the third quarter from a year earlier, hurting revenue and margins.
Delphi, which has struggled to become profitable since GM spun it off, last week said it was holding discussions with the world's largest automaker and its major unions about cutting high US wage and benefit costs to try to avoid bankruptcy.
Elsewhere, debt of BSkyB, Britain's dominant pay-TV operator, was unmoved after Standard & Poor's raised its rating on the company, citing strong full-year results and the financial restraint it has shown in shareholder returns.
S&P upgraded BSkyB one notch to BBB, two notches above "junk", and assigned a positive outlook to the rating, saying Europe's most profitable satellite broadcaster might receive further upgrades if it could build a track record of sound financial management.
Five-year credit default swaps on BSkyB were unchanged, bid at 38,000 basis points, a CDS trader said. That means it costs 38,000 euros a year to insure 10 million euros of the company's debt against default.
But trading overall was thin, with the European summer holidays draining liquidity from a market that seemed content to snooze through the session.
"It's just dead," said one telecoms bond trader.
There was some early weakness in the iTraxx Crossover index, used as a barometer of sentiment in the high-yield market, but this had faded by late afternoon, the trader said.
The Crossover index hit a wide of 301 basis points before retracing to around 297 basis points by 1420 GMT.