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EUR CDS Flow - Single names tighten but Valeo widens
Informa Global Markets - Bondwatch Morning Insight (Europe) (March 23, 2007)

Single name CDS showed continuing signs of strength on Thursday tracking the tightening seen in the indices. The iTraxx Crossover index was 13bp tighter as equity levels took heart from the US Fed keeping rates at 5.25% and comments which the market interpreted to mean interest rate increases were less likely. In single names the main move of the day came from Valeo in the Auto sector after speculation emerged about a possible takeover. 5Y CDS on Valeo was at 92/97 (+7bp D/D) after initially widening 22bp and trading as high as 110, after it was reported Valeo may receive a takeover bid from Apollo Investment Corp. Pardus Capital - a 17.4% shareholder in US autoparts maker Visteon - is planning to merge Visteon with Valeo and it increased its stake in Valeo to 12.25% on Thursday. Sources note that there is a great deal of uncertainty with regard to what will happen to Valeo and Visteon with the market believing that it is best that Valeo wait for Visteon to fold and then asset pick as opposed to purchasing the whole company. Sources note that the Apollo report adds to the confusion. Elsewhere 5Y CDS on Continental was 3bp wider at 43/46 after moving out with Valeo.

Sources note that the Crossover sector was quiet with most names 10-20bp wider moving in line with the market. Dutch retailer Ahold released its Q4 results which beat expectations and reiterated plans to cut debt by EUR 2bln and regain investment grade status. 5Y CDS on the retailer moved in 8bp to 65/70. In news that affected transatlantic carriers such as BA, EU ministers reached agreement on Thursday over the proposed "open skies" pact, which aims to open the transatlantic route to competition. Contacts note that many of the effects of increased competition the pact would bring to BA were already priced in when the pact was first aired. 5Y CDS on BA was unchanged at 85/90.

In the TMT sector 5Y CDS on Norwegian phone company Telenor was flat at 22/25, in a strengthening sector, and its shares fell as much as 5.17% on Wednesday"s close following the company"s decision to adjust downwards its forecasts. Telenor had to review its revenue growth forecast in 2007 to 0-5% from the earlier forecast of 15-20% and its EBITDA margin forecast to 32% from 35% after it deconsolidated its Ukrainian mobile subsidiary Kryivstar from its 2006 accounts due to disagreements with Alfa Group over control of the company. Elsewhere 5Y CDS on Bertelsmann was at 20/23 (flat D/D) after it was reported that it had joined three private equity concerns to bid for the education unit of Thomson Corp reportedly worth USD 5bln. Also unchanged was 5Y CDS on OTE at 28/31 after it reported Q4 results below expectations.

CDS levels tightened in the Financial sector with 5Y CDS in HVB leading the way. The German bank reported that FY net income rose over threefold to EUR 622mln from EUR 191mln last year. Its parent UniCredito saw a 27.8% Y/Y rise in FY operating profit to EUR 10.206bln. 5Y CDS senior on HVB was 2bp tighter at 7/10, with Unicredito at 10/13 (flat D/D). Elsewhere 5Y CDS on Commerzbank was 1bp tighter at 8/10 after S&P raised its long-term ratings on the German lender to A from A-.



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