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CDS Flow Summary - Abitibi & Bowater's merge may hit a snag
Informa Global Markets - CDS Morning Insight (US) (January 31, 2007)

The planned merger of two big North American paper companies could deepen the challenges faced by the newspaper industry and could face antitrust issues as a result due to relatively high market shares for newsprint and uncoated groundwood. Abitibi-Consolidated Inc and rival Bowater Inc yesterday said they agreed to merge operations, creating a papermaker that analysts estimate could own more than 50% of North America's newsprint-manufacturing capacity. The combination is intended to create a stronger company amid declining demand for many types of paper. Pulp and paper makers generally have missed out on the global commodities boom, partly because of the trend toward electronic communications. Both companies saw extreme tightening in default with the news on Monday, but towards the close on Tuesday their default got gripped by widening as Abitibi-Consolidated pulled out +50 bps to a market of 355/365, while Bowater could be seen pushing out 27.5 bps to a closing market of 290/300 on Tuesday. Earlier in the session Abitibi saw trading at 325, 335, and 350.5, while Bowater traded at 270 and 285.

In the technology sector Clear Channel's March 21st voting date doesn't look to be a clear cut deal as the company's biggest shareholder, Fidelity Management & Research, plans to vote against the proposed USD18.7bln private equity buyout of the radio giant according to a source familiar with Fidelity's position. Clear Channel's 5Yr default was busy on Tuesday as it widened +10.5 bps to a closing market of 193/198, with trading being seen in the later half of the session at 187 and 190.5.

Also moving in default was RadioShack which finished with a market of 155/165, which is out from Monday's close of 150/160. Default in Tribune Co also pulled out on Tuesday to a market of 160/165 vs. Monday's close of 148/152. Meanwhile ArvinMeritor Inc saw its Q1 net income fall almost fivefold to USD7mln from USD34mln in the year prior, as the company stated that it faces pressures from light vehicle production cuts by automakers in North America. 5Yr default in the company also took a hit, as it widened +20 bps to a market of 285/300 while trading at 280 a few times. The auto benchmarks all moved wider on the day, with default in FMCO leading the way by pushing out with bids at 478/483. FMCC finished at 248/253 from 240/243, while GMCO finished +12.5 bps wider at 340/350 on Tuesday.

Andre Hinckson



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