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EUR CDS Flow -CDS show little reaction to takeover rumours
Informa Global Markets - Bondwatch Morning Insight (Europe) (December 1, 2006)

On Thursday contacts reported some movement in CDS levels caused mostly by technical factors with structured offerings and correlation trading being cited. Note that ABN is working on its latest CPDO issue from its Chess programme which will reference the CDX and iTraxx investment grade indices. However continued takeover speculation also provided interest.

In the Crossover sector contacts reported a "very subdued" day with little to no action in the single names. 5Y CDS on Alstom moved 2bp tighter to 55/60 and its share price moved up as much as 3.7% to EUR 89.20, but returned back to original levels, on rumours that it is a target for compatriot Bouygues. Note Bouyges 5Y CDS was at 18/21 (-). 5Y CDS on UK manufacturing group FKI moved 18bp tighter (D/D) to 165/175 and its shares jumped as much as 4.5% on Wednesday"s close to 99.5 pence after the group announced a 26.5% Y/Y decline in H1 pretax income to GBP 25mln. Sources reported trade as low as 170. FKI also announced it was to begin a strategic review and contacts commented that it was this that caused the CDS to tighten as FKI is expected to repay debt with any funds it receives from selling off business functions. Elsewhere 5Y CDS on M-real moved 15bp wider to 370/385 after it released guidance that its EUR 400mln FRN will be priced around 375bp over 3-month Euribor. The bond has since priced at 362bp over 3-month Euribor.

In the Consumer sector contacts reported 5Y CDS on UK retail group Kingfisher widening 2bp to 47/50, with trade seen at 47, after a Q3 trading update showed a 10.5% rise in retail profit to GBP 173mln. Contacts reported that the figures were in line with expectations if not slightly worse than predicted. Other movers included PPR which was slightly wider at 44/47, with trade at 47 and Casino was seen marginally tighter at 54/57. Contacts report "strong fundamentals" in consumer single names and tight CDS levels are reflecting this.

In Industrial names, 5Y CDS on French cement maker Lafarge was unchanged at 31/33 after rumours circulated that compatriot building materials supplier St Gobain could be a possible takeover target for the company. 5Y CDS on St Gobain was seen slightly wider at 30/33 as its shares jumped as much as 4.1% on the speculation. A spokesperson for Lafarge stated that the company does not comment on rumours but said that St Gobain does not look like it fits with Lafarge"s strategy. Contacts reported that there were very few protection buyers in the industrial sector.



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