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At Onex's Hawker, bonds signal crash remains likely

Gerry Schwartz, chairman, president and CEO of Onex Corp.

J.P. Moczulski/J.P. Moczulski/The Canadian Press

Onex Corp. holding Hawker Beechcraft is no closer to pulling out of its nosedive, according to the bond market.

Total losses are rare for Onex , the private-equity firm founded by Gerry Schwartz, but it looks like this may be one. The firm and Goldman Sachs Group Inc. each put up about $500-million (U.S.) in 2007 to fund a leveraged buyout of Hawker, and now it appears there's a very good chance that the company will be restructured.

Three weeks after the private-jet maker named a new chief executive, its bonds are fetching pennies from the dollar, and analysts are valuing Onex's stake in the company at zero.

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On Feb. 7, the company named Steve Miller, a turnaround specialist, as its chief executive officer. That came after the company in December hired a financial adviser to help it figure out a way out. The company also hired bankruptcy and restructuring lawyers, the Wall Street Journal has reported.

Suppliers are still being paid, but are getting nervous, according to a report from the company's home town of Wichita, Kansas.

The plane maker has been hammered by a slow economy that's cut the market for business jets, as well as being left out of a key U.S. military contract.

The markets are clearly betting that Hawker will be fully restructured with not much left over for anybody who lent money to the company. The company's owners, Onex and Goldman Sachs, are likely to get nothing at all.

Notes issued by Hawker signal that the lenders have no real hope of being paid back in full.

Hawker's 9.75 per cent notes due in 2017 last traded for 7.25 cents on the dollar, while 2015 notes are in the 22 cents on the dollar range.

As for Onex, its equity in the company is likely worth nothing. BMO Nesbitt Burns analyst Bert Powell, for example, values Hawker Beechcraft at $0 in his latest calculation of Onex's net asset value. In its recent results, Onex said it had taken an "appropriate" mark on the value of Hawker, but did not say what that was.

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