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EUR CDS Flow - Pearson widens as iTraxx Crossover hits low
Informa Global Markets - Bondwatch Morning Insight (Europe) (January 19, 2007)

CDS levels moved tighter on Thursday as the iTraxx Crossover indices reached new lows, breaking the 200 barrier. European equities opened higher but moved back down later in the day. Traders noted "very aggressive" buying on the cash side in high beta names as Bunds continue to fall.

In single names, 5Y CDS on UK media concern Pearson, in the TMT sector, moved 9bp wider to 63/66 with trade at 66, after speculation continued to mount that it will be the target of a LBO. Late on Wednesday The Business named private equity firm KKR as a potential bidder, stating that KKR had started preliminary work on a GBP 7bln leveraged buy-out. This seemed to widen protection on both Reed Elsevier and Wolters Kluwer, which both moved 1bp wider to 30/34, with trade at 33, and 43/48 respectively.

Also moving wider on Thursday in a tighter market was 5Y CDS on French auto parts maker Valeo, in the Auto sector, which moved 1bp wider to 79/83. Speculation that Valeo might bid for US counterpart Visteon was stoked after the US company's largest shareholder increased its stake in Valeo to 5.3%. Shares in Valeo increased as much as 4% on yesterday's close. Trade was seen on Continental at 52 in a market of 51/55 (-2bp D/D).

In the Crossover sector 5Y CDS on Portugal Telecom tightened as much 15bp to 100/120, with trade seen as low as 93 in the morning. Protection recovered slightly ending the day 102/112 (-8), with trade noted at 107 and 110 later on in the day. Spanish newspaper La Razon reported that Spanish telecoms firm Telefonica would accept Sonaecom's bid for Portugal Telecom if the offer was increased by 12%. Note Telefonica owns a 10% stake in Portugal Telecom.

Elsewhere in the sector 5Y CDS on ProSiebenSat.1 narrowed 17bp to 148/173 continuing the tightening noted earlier in the week. Contacts said that the spectre of ProSiebenSat bonds being "taken out" after the completion of its sale to KKR and Permira could be behind the move. Trade was also seen in 5Y CDS on TUI at 212, in market of 210/220 (-) and SAS at 200 in a market of 190/205 (-5).



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