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EUR CDS Flow - Ray Acquisition plummets after IPO filing
Informa Global Markets - Bondwatch Morning Insight (Europe) (February 23, 2007)

CDS levels moved tighter again on Thursday with all of the iTraxx indices making significant moves. Earnings continued to be released at a pace causing specific single name CDS to move.

The big move of the day came in the Crossover sector as 5Y CDS on Ray Acquisition moved 45bp tighter to 70/85 after its Rexel unit filed initial IPO documents with the French regulator. Rexel said that it had entered into a EUR 2.1bln senior credit agreement this month, which was conditional on raising at least EUR 800mln. Note that EUR 1.6bln of the facility is earmarked for the refinancing of existing debt. 5Y CDS on German medical products manufacturer Fresenius tightened 10bp in the morning but then moved back in 5bp to 75/85 (-5bp D/D) after it reported that FY group EBIT rose 49% Y/Y to EUR 1.44bln. The company also said that it has EUR 300mln for acquisitions in 2007 and that it was prepared to "opportunistically" raise its takeover budget. Contacts note that this potential "war chest" for acquisitions has kept CDS levels from tightening further.

Elsewhere 5Y CDS on EMI tightened 5bp to 160/175, after reports that it was in talks with private equity firms including One Equity Partners, a unit of JPMorgan Chase, about an alternative to Warner Music"s USD 6bln offer. Note that EMI still believes that regulatory barriers could block a takeover by Warner Music. 5Y CDS ON Portugal Telecom was flat at 90/100 after Telefonica, which owns 9.96% of Portugal Telecom, said that it would support Sonaecom"s bid. There were plenty of earnings in the Industrial sector, which contacts noted was 1bp tighter on average, with 5Y CDS on BAE moving 2bp tighter to 13/16 after releasing its results. BAE reported that FY EBITDA increased 33% Y/Y to GBP 1.207bln.

Contacts note that concerns over the Serious Fraud Office"s ongoing investigations into past BAE deals limited the tightening. Elsewhere 5Y CDS on BASF was 1bp tighter at 10/12 after it reported that FY EBITDA increased 18.1% Y/Y to EUR 9.723bln, in line with expectations and also announced it plans a EUR 3bln share buy back programme for 2007/2008. Late in the day Moody"s announced that it had revised the outlook on its Aa3 long-term rating on BASF to negative because of the buy back plans. Elsewhere trade was seen on Ciba at 41 in a market of 40/43 (-1bp D/D).

It was the same story in the Consumer sector where there was also a flurry of earnings. 5Y CDS on Kingfisher moved 3bp tighter to 52/55 with heavy trade at 53, after it released sales figures for Q4 which showed an 11.8% Y/Y rise in total retail sales to GBP 2.083bln. The company also said that it expects to announce adjusted pre-tax profit slightly ahead of analysts" current expectations. Trade was also seen on the tobacco names after Altadis released its FY results and dismissed Wednesday"s reports that US based Altria is seeking Altadis" support for a bid for Imperial. 5Y CDS on Altadis was unchanged at 25/28, as was 5Y CDS on Imperial Tobacco at 29/31, with trade at 28. There was heavy trade on BAT at 22 and 21.5 in a market of 21/25 (-1bp D/D).



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