DEUTSCHE JUNK BOND ISSUE BLOWS UP
By JENNY ANDERSON
May 18, 2004 -- Deutsche Bank's New York junk bond desk saw a $500 million bond deal finally go bust last night, forcing the giant firm to reprice the offering this morning.
Repricing the deal, done for tractor maker Case New Holland, is a major embarrassment to the bank and its top-flight junk desk, industry sources said.
Deutsche Bank, which bought the bonds - a standard procedure on Wall Street - may have to sell them for less, which could leave the bank with tens of millions in losses.
The bond bust-up is a black eye for Deutsche Bank, whose cranky bondholders have watched the value of the bond plummet as information came out showing that the CNH assets guaranteeing the bond were of a lower credit quality than was previously disclosed.
That made the bonds a riskier bet for investors, who in turn demanded a higher interest rate - the factor that sent Deutsche back to the drawing board.
Market sources say Deutsche Bank did not know about the disclosure issue when it priced the deal, but did know about it before the final documents confirming the deal reached investors.
A Deutsche Bank spokesman declined to comment. A CNH spokesman did not return calls for comment.
Case New Holland is a wholly owned subsidiary of CNH Global, the second-largest maker of agricultural equipment and the third-largest maker of construction equipment, according to business data provider Hoovers.
The saga started on May 4, when Deutsche Bank priced the bonds at $97.46 with a 6 percent yield.
Demand for the issue was weak, and traders involved in the offering estimated that Deutsche Bank had been able to sell only 40 to 60 percent of the bonds; the low demand sent the price plummeting.
If Deutsche Bank can reprice the bonds at a level more acceptable to the markets, the bank could minimize its loss.
