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USD CDS Summary - Mining merger mayhem prompts CDS flow
Informa Global Markets - CDS Morning Insight (US) (September 6, 2006)

Copper producer Phelps Dodge's failed bid for nickel producer Inco amounted to more than just a couple of banterings in the mining world. It raises questions about whether the troubled Phelps Dodge can stand alone as a company and how the next round of suiters for Inco will pan out. CDS in both names was active.

Fresh from not measuring up to Xstrata in the fight for Falconbridge, the firm again did not meet the needs of shareholders at Inco. The falling out of the agreement worth about USD17bln lent a hand in tightening the default of Phelps Dodge to 40/44, in from 42/47, while the default of Inco pushed out to 59/64 from 56/61.

The chemical sector had some default swap widening of its own, but mostly due to debt news and tender offers. Lyondell extended 25 bps to 235/245 from 210/220, while competitor Nova Chemical pushed out 10 bps to 245/255. Lyondell said it would issue a USD1.78bln bond due this week and use proceeds for refinancing and repay a portion of its seven-year term loan.

A bond offering out of DaimlerChrysler, to the tune of USD1.5bln 5s, prompted its default swaps to widen to 48/50 from 46/48. Dealers saw active buying of default along with buying of its bonds, creating a negative CDS basis play. The deal priced at 113 bps or 66 bps on an asset swap basis.

The main auto benchmarks themselves saw General Motors outperform in default with markets tightening to 580/590 from 615/625. The better moves were attributed to a delayed reaction due to the holiday of its retail sales rise of 8%. GMAC also tightened with levels seen at 190/195 from 197/202. Ford Motor Co eased to 635/640 from 635/655, while CDS in Ford Motor Credit tightened to 325/330.

Among other movers, Cendant also extended again in default to 79/84 from 75/86. The name continues to be volatile on occasion, though some dealers remain shy of the credit. To at least one investment grade CDS trader, it is a name that trades mostly on documentation as opposed to fundamentals and thus, is too big of a risk for him. But the short positions are evident in the name nevertheless with 70 bps remaining a floor in the name. Even during the summer, Cendant CDS shorts also kept the name above that level.

In high yield, a name that was once very active in default, Intelsat, saw muted reaction to its IPO news. The firm is not yet coming with an IPO to reduce its debt. 5Y USD CDS in the name was relatively unchanged at 502/517.

Kathleen Fitzpatrick Hoffelder



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