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EUR CDS Flow - Altadis tighter again as LBO fears recede
Informa Global Markets - Bondwatch Morning Insight (Europe) (June 1, 2007)

The CDS market moved tighter again on Thursday after levels had been relatively unchanged to a touch weaker the last couple of days. Spanish tobacco concern Altadis was one of the biggest movers as it continued its tightening path seen in the last two days. 5Y CDS on Altadis moved 3bp tighter to 67/68, with sources stating that protection went as much as 10bp tighter trading at 58, after reports that PAI, the French private equity group, had withdrawn from the EUR 12.8bln joint bid with CVC Capital Partners, which Altadis later confirmed. The report said that CVC was set to launch a solo bid, but would like to involve either a French or Spanish co-investor to help appease unions in both countries.

Elsewhere Imperial Tobacco was 1bp wider at 42/44 after reports that it was to raise its bid for Altadis to more than EUR 50 a share. Elsewhere in the Consumer sector Kingfisher posted Q1 retail sales of GBP 2.294bln, representing a 6.7% Y/Y rise like-for-like, alongside retail profit of GBP 88.6mln, which was 29.9% higher at constant currencies. 5Y CDS on the company was 1bp wider at 53/58 and shares in the company fell 3.88% on Wednesday's close due to the Kingfisher's cautious outlook for the FY with analyst's highlighting tougher comparables and the effect of interest rate rises.

In other news 5Y CDS in Dixons was unchanged at 44/47, as shares rose 4% on Wednesday's close, after the departure of CEO John Clare, which sources said could make the company a more likely bid target. There were a few moves tighter in the Industrial sector today reflecting the wider market. 5Y CDS on EADS was 1bp tighter at 15.5/17.5, as was 5Y CDS on Rolls-Royce at 14/16. Note that late on Wednesday Airbus said that Colombian airline Avianca had placed a firm order for 38 aircraft and had options on a further 32 planes. This followed Qatar Airways deal for 80 A350XWB aircraft with a total list price of USD 16bln and confirmation that Qatar Airways had expressed an interest in buying a stake in EADS.

Another defence name moving 1bp tighter was BAE Systems at 15/18, whilst 5Y CDS on Finmeccanica was unchanged at 13.5/15.5 following the approval by shareholders yesterday of a proposal allowing the company to increase capital by as much as 10% for special purposes or acquisitions. Traders said that the defence firms, especially BAE and EADS, were just returning to their previous tight levels before the 3-4bp widening seen at the beginning of the month. The Crossover sector was relatively quiet, apart from 5Y CDS on Portugal Telecom which moved 2bp tighter to 34.5/39.5 following a report which said that PT may keep its 50% stake in Brazilian phone company Vivo, even if it acquires rival operator Telemar. Note that Vivo is a 50-50 JV between PT and Spain's Telefonica. Elsewhere, 5Y CDS on EMI initially edged 3bp tighter but ended unchanged at 160/170 after reports that it would not accept a counter bid from US rival Warner Music Group if it was less than 300 pence per share.



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