Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Stocks

JP Morgan Might Offload Amtek Auto's Troubled Bonds to a Vulture Fund at a Haircut

Amtek Auto’s bonds have been held by JP Morgan AMC, now in a segregated fund. The 200 crore worth bonds are it seems, in some kind of a deal with a vulture fund, SSG Capital Management. (Source: Economic Times)

While SSG plans to directly buy out the Rs 200 crore debenture holding held by JPMorgan, Amtek intends to settle the issue of the remaining Rs 600 crore debentures with the banks and realign the debt with Amtek’s future cash flows, multiple sources close to the negotiations told ET.

TERMS & CONDITIONS

But SSG wants JPMorgan AMC to offer the debentures at a decent discount as well as the Amtek management to provide additional security besides stringent payment conditions – terms that the management is yet to agree.

“The fund has put the terms before the management and they have almost agreed to the terms. The negotiations are on and are in an advance stage,” said one of the sources. “We need to have regulatory approvals, which are pending at this point in time,” said one of the sources. “Till two week ago, JP and SSG were discussing the haircut…But if SSG gets more collateral, Amtek’s existing bankers would demand more cover,” said a person familiar with the situation.

The concept is:

  • JP Morgan AMC will get less than the Rs. 200 cr. that the bonds were supposed to repay. Let’s say they take a haircut of 50%, they would only get Rs. 100 cr.
  • And then, SSG would attempt to get as much as they can from Amtek Auto – say Rs. 150 cr. – and make a good return. This would be great in isolation, of course, if SSG was the only lender to Amtek – they get to pay back only 150 cr. when they have
  • In order to ensure this, SSG is demanding that more collateral should back these bonds, says by pledging assets to SSG or such.
  • But Amtek has a LOT of loans from other banks and lenders, who have an equal lien over all of Amtek’s assets. If Amtek should give more collateral to one lender (SSG) then that collateral is not available to them in case something really bad happens, and that is unacceptable.
  • So other banks will demand that they also be given more collateral, which is an impossibility because Amtek’s problem is too much debt at this point, they may not have assets to provide more cover.

The stock itself hasn’t moved much, and continues to be in the doldrums. Every few days some enthusiasm happens and then goes thud again. Amtek

The JP Morgan move will be interesting for bond markets, since there’s a situation of default, and this is an unwinding. What kind of haircut will happen? Will other lenders agree to any extra collateral cover?

It’s already more than two months since the default. We have no idea how much longer it will take.