CDS Flow Summary - Dealers set up for General Motors' at bat
Informa Global Markets - CDS Morning Insight (US) (October 25, 2006)
With most of the street leaning one-way on auto leader General Motors turning out a rosy performance tomorrow in its Q3 results, the market could get ugly if GM does not live up to expectations. Dealers were inclined mainly to sell protection on GM today, pushing its 5y CDS inward by another 20 basis points to 465/470 from 483/493. The move stems from a belief that General Motors will cater to activist investor Kirk Kerkorian's whims by announcing a profit, restructuring news, and a likely update on further cutting Delphi's retirement costs. Financial arm GMAC is already as tight as it can go at present with levels at 150/160 today, not much changed from 153/156 on Monday. Default in Ford Motor Co also eased another 20 basis points to 620/630 from 645/655. The favorable disposition in Ford's credit standing today was helped by Goldman who upgraded the firm. Ford Motor Credit was at 360/370 from 365/370 seen on Monday.
Parts makers followed some of that tightening as ArvinMeritor eased to 400/410 from 410/420. Lear tightened to 403/420 from 425/435. Default in American Axle was at 345/365 from 375/380.
Earnings/ratings moves took up the rest of the busy CDS session with Altria easing to 31/33 from 34/36 on a positive knock from Moody's. The agency said less litigation woes assisted in boosting Altria's ratings to Baa1. Altria is due to report its earnings tomorrow as well. The company has garnered much attention this week as it waited a day longer than typical to release its results as speculation built up on whether it would announce its Kraft spinoff.
Default in Countrywide Home Loans, the subsidiary for Countrywide Financial, widened to 37/40 from 36/39. The firm reported a Q3 profit that rose 2%, but it was less than expected. The mortgage lender plans to cut 2500 jobs.
In other earnings moves, chemical firm Flextronics posted a Q2 profit of USD185mln or 31 cents a share versus a loss of USD2.4mln. But it forecasted lower revenue at USD5.1bln to USD5.3bln. CDS widened to 130/140 from 125/135. Lyondell Chemical widened to 210/220 from 210/215, while Nova Chemicals pushed out to 240/245 from 234/238. Energy firm Halliburton eased to 25/30 from 28/30 as the firm, while ConocoPhillips tightened to 17/21 from 18/22. Insurer Cigna tightened to 32/36 from 34/38. Mortgage insurer MGIC eased to 28/32 from 30/34 as did PMI Group.
Kathleen Fitzpatrick Hoffelder