Turmoil at auto parts suppliers boosts recovery products
Firms such as Collins & Aikman and Delphi are proving fertile ground for trading in recovery swaps
The recent turbulence within the US auto parts industry has highlighted the need for hedging recovery risk and predetermining the recovery rate of a bond in advance of any default.
Auto parts supplier Collins & Aikman filed for Chapter 11 protection in May and investors have seen the performance of the firm's debt nosedive. Spreads on Collins & Aikman's 10.75% 2011 bond careered from 600 basis points over asset swaps in February to 1,800bp after the filing.
Following default, the auto supplier's
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