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CDS Flow Summary - ResCap,GM in,but still lofty;Home Depot bid
Informa Global Markets - CDS Morning Insight (US) (March 7, 2007)

The losses from the mortgage lending debacle are starting to be tallied and those firms with few losses are speaking out like Lennar and Countrywide today. Both claim light exposure to subprime mortgages as part of their total make-up. But even though CDS in lenders, homebuilders and autos reversed course today and tightened, caution remains. Default swap levels are still exceedingly wide for the autos, which gapped out Monday. Dealers say even with the tightening, default is too wide.

Case in point is General Motors, whose ties to its former lending unit ResCap could hurt the firm by up to USD1bln for covering bad mortgages. A Lehman Brothers analyst report today cited the possible charge over its relationship with ResCap. Default in ResCap similar to the rest of the auto sector and mortgage lending group eased back today. Default traded in ResCap at the start of the session from 225 down to 212 and 205. This is in from 225/230 Monday. GM's default eased to 387/397 from 460/470. GMAC default tightened to 180 from 215/225. Even competitors Ford Motor Co and Ford Motor Credit eased back to 580/590 and 310/320 from 625/630 and 360/370, respectively.

While mortgage lending pressures eased somewhat today, Fed Chairman Ben Bernanke attempted to stoke a fire under Congress to change laws that let retailers own bank charters. Home Depot and Wal-Mart were particularly eyed as both are in the process of obtaining industrial loan corporations. Default in both was active, with Home Depot receiving a bid, say dealers. Five-year default in Home Depot traded at 23/27, out from 19/22. 10Y CDS dealt at 51 and 7Y had interest at 34/38. Wal-Mart 5Y CDS was at 6/7, with interest in 3Y CDS at 3/4 and 10Y CDS at 11/14.

Retailers also eased back on the day in default. Levels in RadioShack traded wide at 135 at the start of the session and eased on trade at 133, then back to 120/130. This compares to 127/132 Monday. Gap eased back to 110/115 from 121 Monday. Limited Brands dealt at 56 and 54. Toys R US traded at 470 and 460 from 450/470 Monday. Federated traded at 50 from 46/50. Grocer Safeway saw dealing at 41/45, while 7Y CDS dealt at 61. Kroger traded at 40/43. Travel concern Expedia dealt at 150. The firm typically deals on the back of Sabre, which plans to discuss its cost reduction program with lenders tomorrow.

Kathleen Fitzpatrick Hoffelder



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