Distressed Debt Recommendations from Citigroup

This past Tuesday, Citigroup’s distressed analysts presented their respective top picks to a large audience at the company’s high yield conference. As one would expect from a “flow shop” most of the names discussed were very high profile companies with large capital structures. While there were no “hidden gems” unearthed, their team did a great job of elucidating their points. The presentations opened my eyes (wider) to a couple of situations I had previously written off as not worth the trouble. The following is a list of their top picks with a brief synopsis of their thoughts.

  • Positive on the entire cap structure (bank debt YTM = 14.5%; bonds 13-14%)
  • Not just a sub-prime portfolio – had a different business than most because they knew they were keeping the loans being made
  • Thinks they are able to handle the July 2010 bank debt maturity through internal liquidity, bank group extension, or a loan/cash from AIG given the ILFC precedent
  • Like the steering committee loans because they have ‘B’ yields for ‘BB’ risk
  • Thinks the Series B Notes go to par upon emergence
  • Estimates $6 bln of book equity, which implies 18 points of additional bond value
  • New notes should return 20+% over next 6 months

  • Bonds trade at 107 area, downside is your claim
  • 2016 Notes are structurally senior to other notes
  • IF EV > 1.2 bln then you get par on the 2016s
  • Upside comes from equity value
  • Risk is that you are taken out for cash or reinstated somehow
  • (Note that GM bonds were marching up to 23 from 17 throughout this day)
  • Base case recovery is 29.5
  • Q3 #’s show they are ahead of plan
  • GM bonds cheaper than Ford equity
  • Macro bet on the economy
  • (Citi’s analyst did an amazing job with this presentation. He gave out a 30 page slide deck that I would highly recommend for those with Citi coverage. The bullets below are from the first page alone!)
  • Resolution of Lehman’s many estates will be very difficult and there is no way to determine assets and claims with precision
  • However, there is enough information to set reliable ranges for many variables
  • Estimate base case recoveries of 25-32
  • Recovery is most sensitive to changes in asset value assumption, setoff and collection
  • Time to distribution and discount rate are next most important drivers


Anonymous,  11/23/2009  

Is there any way to get the actual presentations? Thanks.

Anonymous,  11/23/2009  

yah would love to see the lehman presentation

Troy 11/23/2009  

Linked in to your site. Very nice. i look forward to reading more


market folly 11/24/2009  

hey Hunter great stuff as always. Was curious as to what your favorite play was among their picks? The Chemtura situation is shaping up nicely I'd say.


Troy 11/24/2009  

Since you mentioned Chemtura I thought I would chime in. Love CEMJQ. It is shaping up nicely and should pop to the two dollar range with little effort. My FAVORITE play however is Tronox. Much better value than CEMJQ. Symbols are trxaq and trxbq. No value/preference difference in shares except that B shares have 6x voting rights to A shares. I beleive Tronox is valued at around 7.50 a share. Currently at 50-60 cents.

Dutchman,  11/30/2009  
This comment has been removed by a blog administrator.


hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.