EUR CDS Flow - TMT levels tighter in quiet market
Informa Global Markets - Bondwatch Morning Insight (Europe) (May 18, 2007)
Thursday was relatively subdued with many European countries out of the market due to the Ascension holiday. Generally, CDS levels were a touch tighter in particular the TMT sector.
5Y CDS on Telefonica and Telecom Italia was 1bp tighter at 23/26 and 33/36, respectively, in line with other moves such as KPN which was at 37/40 (-1bp D/D) Deutsche Telekom at 22/25 (-1bp D/D) and TeliaSonera at 21/24 (-1bp D/D). Late On Wednesday Telefonica said that it planned to keep its Brazilian and Argentinian units separate from the ones controlled by Telecom Italia in an attempt to win regulator approval for the purchase of a stake in the Italian company. Despite releasing Q1 results this morning 5Y CDS on BT was unchanged at 33/36. BT"s figures were in line with expectations with Q4 EBITDA before specific items up 3% Y/Y to GBP 1.474bln and the company announced a GBP 2.5bln share buy back programme. Amongst the media names 5Y CDS on Pearson was 2bp tighter at 47/50, Vivendi was 1bp tighter at 37/40 as was Reuters at 19/22, with no specific drivers behind the moves.
In the Consumer sector 5Y CDS on Experian Finance was 2bp wider at 48/51 with market participants citing cautiousness around possible private equity interest. This stemmed from the purchase of one of its main rivals in the US Acxiom by private equity firms Silver Lake Partners and ValueAct Capital for USD 3bln. Shares in Experian were up 2.4% on Wednesday"s close. Elsewhere in the sector 5Y CDS on Altadis moved 4bp tighter to 88/90 after it was reported that Imperial Tobacco had approached a number of private equity groups looking for support for its bid for Altadis. The report said that Imperial was mulling whether it can justify raising its bid from EUR 12bln after private equity concerns PAI and CVC made a EUR 12.8bln indicative bid. 5Y CDS on Imperial was unchanged at 44/46.
Along with strength in the TMT sector traders said that 5Y CDS on Portugal Telecom, in the Crossover sector, was 4bp tighter at 34/36. Sources noted that market participants had wound down short-risk positions on the name as it looked less and less likely it would be bought by Sonaecom. Late on Wednesday it was reported that Sonaecom had made a non-binding offer to buy Oni"s residential fixed line business. Other sources said that the spread was converging with that of its peers as it looks like it will sell its stake in Vivo to Telefonica, which would make it an attractive takeover target for industry players. Traders also said that there was heavy trade in 5Y CDS on Cap Gemini, which was trading up at 82 late on Wednesday but opened around 80 this morning, with speculation surrounding a possible bid for rival Atos. It was reported in April that Cap Gemini was not interested in Atos, but speculation has re-emerged after Atos said talks with buy-out firms collapsed. Elsewhere Cognis said today that it had completed its refinancing, during which it repaid its existing bank facilities and its second lien notes and loans, and redeemed a portion of the PIK) notes at its parent level. 5Y CDS was 20bp wider at 340/350.