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EUR CDS Flow - Company earning focus the CDS market
Informa Global Markets - Bondwatch Morning Insight (Europe) (February 16, 2007)

Thursday was full of company earnings releases especially from the Industrial and Consumer sector. The iTraxx Crossover index reached new tights and this was reflected in single names which were marginally firmer. It was not only earnings that caused CDS to react, again a handful of IPO stories moved select names.

In the TMT sector Reed Elsevier started things moving with a 4bp shift tighter to 26/29 after reporting a FY net income increase of 35% to GBP 623mln, well ahead of expectations. Reed also said that it plans to sell its education unit by the end of the year and return all proceeds to shareholders. Shares in Reed Elsevier reacted positively climbing as much as 7.48% on Wednesday's close.

ABB, Solvay and Akzo Nobel, in the Industrial sector, all released results that missed expectations. 5Y CDS on ABB moved 2bp tighter to 23/26 after the CEO hinted that debt reduction may be on the agenda. Contacts note that the move tighter happened despite the company missing estimates with its Q4 results. 5Y CDS on Solvay was at 13/15 (flat D/D) after it reported a drop in REBITDA (EBITDA before non-recurring items) of 6%. Shares fell as much as 5.3% on Wednesday's close. 5Y CDS on Akzo was 1bp wider at 26/28 after it disappointed despite a 11% increase in Q4 EBIT to EUR 249mln. Akzo said that it expects the IPO of 20-30% of its Organon unit to be completed by the end of March but it also said that it has a duty to look at signals of interest in the drug unit. Contacts note speculation that it is collecting funds for a potential offer for ICI pushed the cost of protection wider. 5Y CDS on ICI was unchanged at 32/35.

In the Energy sector it was not talk of share issues but bond buy-backs that caused 5Y CDS on French utility Suez to move 2bp tighter to 14/16. Suez announced that it had offered to buy for cash the 5.5% 2009 and the 4.25% 2010 bonds up to a maximum of EUR 1.25bln. Suez stated that its priority acceptances will be on the 2009 notes.

CapGemini, in the Crossover sector, provided some cheer after it released FY results which showed an increase in operating income of 56.1% Y/Y to EUR 334mln. These strong results caused 5Y CDS on the French consulting firm to move 3bp tighter to 55/60 and made shares rise as much as 5.14% on Wednesday,s close to their highest level in almost five years. Elsewhere 5Y CDS on Portugal Telecom continued to widen moving out 4bp to 114/124. This followed further comments from Sonaecom which wants Portugal Telecom shareholders to know that they would be voting on a bid they know cannot be increased. Elsewhere Smurfit Kappa was 7bp tighter at 153/163 after S&P said that, subject to the proceeds of the announced IPO being used to reduce high cost debt, it will raise the credit ratings of Smurfit Kappa one notch to BB-.



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