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EUR CDS Flow - C&W & Morrison boosted by FY results
Informa Global Markets - Bondwatch Morning Insight (Europe) (May 25, 2007)

CDS levels generally held steady on Thursday after a week of tightening momentum. The iTraxx Crossover index was a touch weaker and this was reflected in the single names in the Crossover sector, which saw a handful of earnings releases and M&A related stories.

The big move in the sector came from 5Y CDS on C&W which moved 17bp tighter to 143/153 after reporting that FY group EBITDA before exceptionals rose 20% Y/Y to GBP 492mln (up 26% at constant exchange rates). The company also said that it had not received takeover approaches and had nothing new to announce on acquisitions. Elsewhere 5Y CDS on Invensys was unmoved at 90/100, with trade seen down at 92, after reporting that Q4 EBIT rose 16% at constant exchange rates to GBP 79mln (FY GBP 241mln, up 30%). Also releasing results was RAG, the parent of Degussa, which posted a 21% Y/Y rise in Q1 EBIT to EUR 425mln. 5Y CDS on Degussa was flat at 59/65. The travel companies in the sector were showing weakness with 5Y CDS on TUI 7bp wider at 210/220, SAS 2bp wider at 150/160 and Sol Melia 1bp wider at 58/62. Note that TUI priced a EUR 625mln issue of convertible bonds, partly to refinance debt.

The Auto sector was generally unchanged but traders did say that 5Y CDS on Continental was seen 1bp wider at 40/43 following reports that it had offered EUR 11bln for Siemens" VDO unit. Sources noted that protection did not widen by much because Continental does have a lot of spare cash and will make disposals to fund a large part of the proposed bid. Contacts also said that if Continental acquired Siemens" VDO unit then it would make the tyre maker less of a private equity target.

Amongst the Consumer names traders said that 5Y CDS on Safeway was 1bp tighter at 49/51 after its parent Morrison posted a 4% Y/Y rise in Q1 like-for-like sales excl fuel. The company said that cash flow had been "strong" so far and reiterated its expectation that net debt would rise later in the year. Traders commented that 5Y CDS remained stable after Morrison later said that it may look at a limited sale and lease-back of a small number of its sites. Elsewhere 5Y CDS on Air France was 1bp tighter at 40/43, with trade at 41, after it posted a 32.5% Y/Y rise in FY operating income to EUR 1.24bln. Traders said that the move was not based on the results but on short covering and market technicals. Traders also said that 5Y CDS on Deutsche Post was 1-2bp tighter at 24/23, with no real news behind the move.

Takeover talk concerning Technip and Eni in the Energy sector had little effect on protection levels. 5Y CDS on Technip was unchanged at 25/29 following reports that Eni may announce a takeover bid for the company after French rules blocking such a transaction over the last six months expired. Markets contacts commented however that they had not seen much flow on the back of the news and that Eni 5Y CDS remained solid at 5/8. Elsewhere dealers said that they had seen some buying of 5Y CDS on water companies after further LBO speculation on Kelda, but 5Y CDS was unmoved at 21/22.

 

 

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