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EUR CDS Flow - Valeo wider on renewed Visteon talks
Informa Global Markets - Bondwatch Morning Insight (Europe) (January 12, 2007)

Trading proved to be brisk on Thursday in single name CDS as levels broadly tightened. The tightening was led by European equities which rallied after the ECB held rates steady and despite the Bank of England unexpectedly raising interest rates to 5.25%.

Traders reported strong trade in 5Y CDS on carmaker Valeo in the Auto sector as the cost of protection pushed wider as much as 12bp but then receded slightly to 78/82 (+9bp D/D), with trade seen at 85. The move came after comments from the CEO late on Wednesday, who said that the company had not ruled out a bid for distressed US counterpart Visteon or even parts of bankrupt rival Delphi Corp. One contact noted that last time the Visteon rumours appeared Valeo was trading at it highest around 105 and that he well expects the French company to widen back to this level, however another source noted that a lot of investors are happy to sell their Valeo 5Y CDS around the 85 mark having purchased at about 65. In the US 5Y CDS on Visteon reacted by tightening 40bp and contacts note that a lot of investors will be playing on the conversion between Valeo and Visteon if the rumours persist.

The early move of the day came in the Tobacco names as 5Y CDS on Imperial Tobacco moved 2bp wider to 40/42 with trade at 42, after reports and rumours that it was eyeing a bid for Spain"s Altadis. 5Y CDS on Altadis widened 1bp to 33/35. Shares in the companies rose late yesterday amid the rumours. Trade was also seen in 5Y CDS on BAT at 26 in a market of 26/28 (-).

In the TMT sector CDS levels were generally tighter on the telecom names, with contacts noting early trade. 5Y EUR CDS on Greek phone operator HellenicTelecom ended the day unchanged at 34/36 with trade at 35, after moving tighter in the morning following speculation that it could be merged with Telekom Austria. Sources report that the latest rumours suggest the deal is not going ahead and that is why OTE protection moved back out to be unchanged. 5Y CDS on Telekom Austria is also unchanged at 26/28. It was reported in Kurier yesterday that the Austrian government had lent its backing to the merger and today the Greek government set out terms for the sale of its stake in OTE which seem to favour industry buyers. Contacts note that this allayed fear that the Hellenic Telecom may be bought by private equity firms. Elsewhere trade was seen in 5Y CDS on Vodafone at 27 in market of 25.5/28.5 (+2bp) and on BT at 40 in a market of 40/43 (-3).

Takeover talk swirled around in the Industrial sector with chemicals firms BASF and Akzo Nobel the subject of rumours that they are interested in smaller counterpart Clariant. 5Y CDS on BASF and Akzo was unchanged at 9/10 and 26/29, respectively. 5Y CDS on Degussa moved around 2-3bp wider to 94/100 with trade seen at 96, 98 and 100 after reports resurfaced that the IPO of Degussa"s owners RAG is to be delayed due to political disputes. Early in December the same story was reported that the IPO may be delayed until summer 2008 due to political delays concerning agreements on coal subsidies. Degussa 5Y CDS has been widening ever since. Sources note that Thursday's news was not "a big deal" and should already be priced in.



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