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CDS Flow Summary - Sara Lee cooks up better CDS on bread gain
Informa Global Markets - CDS Morning Insight (US) (November 8, 2006)

Bakery product and cheesecake maker Sara Lee stirred up a notable tightening in default today as market participants gave the firm a pat on the back for successfully selling off its Hanesbrands for a one-time payment of USD2.4bln and successfully adding products in the right places such as in breads and breakfast. Net income rose to USD333mln, or 44 cents a share, from USD67mln, or 9 cents a share. Sales rose 4.7% to USD2.89bln from USD2.76bln. Sara Lee also raised its earnings forecast ending in June to 86 cents to 92 cents a share. Default tightened accordingly on a last bout of trade at 68, which is in from 70/76 Monday. While Sara Lee's transformation continues to be mulled, LBO candidate Avon Products again had default swap trade. Levels went through at 20 today, which is in from 23/28. Recall that the firm blew to 25 from 15 basis points last week on LBO rumors.

Food related concerns had noticeable tightening. Cargill traded at 16, which is in from 20/25, while grocer Kroger traded at the tight level of 34, leaving markets at 33/35 from 38/43 and 10y CDS traded at 65 basis points.

But while food and cosmetic names traded in a positive light this session, homebuilders were not so lucky. Toll Brothers and competitor Beazer Homes both reported dismal earnings results due to cancellations and a slow down in orders. Toll's sales declined to USD1.81bln from USD2.01bln and more importantly for default, cut its forecast for 2007. Beazer Homes said its fiscal Q4 net income fell more than 40% to USD91.9mln. Default in Toll Brothers was at 81/85, out from 78/82. Similarly, Beazer Homes was at 210/220, from 213/218.

Troubled retailer Jones Apparel traded at 68 in default and then 70 basis points, which is out from 64/70 Monday. Gap Inc was fairly steady at 100/110, out from 100/105. Dillard's eased to 150/155 from 160/165.

In the medical field, Boston Scientific default traded at 54 today, in from 54/57. St Jude's heart device software won US approval for computers used to control implanted pacemakers. Tenet Healthcare widened to 407/427 from 400/410 yesterday. An earnings restatement, meanwhile, for General Motors managed to send its default inward to 425/430 from 430/440, while GMAC had a last round of trade at 135, leaving it at 133/137 from 133/138. Ford Motor Co eased to 525/530 from 540/550, while Ford Motor Credit eased to 330/335.

Kathleen Fitzpatrick Hoffelder



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