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EUR CDS Flow - Stability returns; M&A news forces CDS moves
Informa Global Markets - Bondwatch Morning Insight (Europe) (November 10, 2006)

Stability returned to the CDS market on Thursday after CDS levels snapped wider on Wednesday. However, there was plenty of news to digest with a deluge of earnings releases providing the focus early in the day. M&A news and rumours also kept traders busy.

The main event of the day in the TMT sector was news that NTL has scheduled talks with ITV regarding a possible "combination". 5Y CDS on ITV jumped wider by 15bp as the Guardian broke the news, and then widened a further 5bp as NTL confirmed its interest with a subsequent additional 20bp widening as ITV said that it was willing to listen to any bona fide proposal. This left 5Y CDS on ITV at 130/140 (+40). 5Y CDS on NTL remained static at 387/402 (-).

Shortly afterwards, 5Y CDS on UK retailer Sainsbury moved 3bp wider on talk of potential private equity interest in the company. The contract weakened further with a trade heard at 25 and a quote seen at 22/25 (+5) at the end of the day. Note that Sainsbury"s share price rose almost 4% during the day.

In the Energy sector, 5Y CDS on Iberdrola early in the day rose to and then stayed at 15/18 (+4) with trade at 17 after a report in the FT said that the company had joined a private equity firm in exploring a Scottish Power bid. The paper said the consortium was ready to table a bid at over GBP 8 per share. Iberdrola on Wednesday said that it had not presented a bid for the UK power company and today added that was considering making a bid for the company and that it was studying different investment possibilities but had not taken any decisions yet. 5Y CDS on Scottish Power had lost a significant chunk of yesterday"s widening by mid morning and was seen at 26/34 (-14), though weakened again to end the day at 32/37 (-8). Elsewhere, trading was noted in 5Y CDS on National Grid Plc at 26 with a quote at 25/28.

In the Industrial sector, 5Y CDS on Technip held firm at 25/28 as the company"s share price showed a 4.3% D/D rise amid unconfirmed murmurings in the market that Italy"s Eni may bid for the French company. 5Y CDS on Eni was also unchanged at 5/8. Meanwhile, trading was noted in 5Y CDS on Bayer at 23 with a quote seen at 22/25 (-), Akzo Nobel at 23, which is quoted at 21/14 (-), and UPM-Kymmene at 33, which is seen at 31/34 (-). Note that UPM offered to buy 15% of M-Real"s stake in Finnish pulp maker Metsae-Botina for EUR 500mln. The news sent 5Y CDS on M-Real, which is a member of the Crossover universe to 310/335 (-29bp) in the AM, where it remained.

A number of names were active in the Crossover sector on Thursday. Trade was witnessed in TUI at 245 after the company reported Q3 net income well below consensus and also received a downgrade from Moody"s to Ba3 from Ba2. 5Y CDS rose as high as 250/260 and was last seen at 245/255 (+18). In contrast, ProSiebenSat moved around 25bp wider to 160/190 after the company reported that Q3 net income dropped 44.7% Y/Y to EUR 13.1mln due to the costs of bond buybacks. In other earnings-related names Invensys moved 10bp tighter to 135/145, with a -8bp shift seen in Seat Pagine Gialle to 197/207 and Portugal Telecom 5bp wider to 125/135 with trade seen at 133. Trade was also heard in Fiat at 103 (102/112, -3bp) and Cable & Wireless at 252 (248/258, -2bp).



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