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EUR CDS Flow - CDS spreads weaken; Boots volatile
Informa Global Markets - Bondwatch Morning Insight (Europe) (July 6, 2007)

Contacts said that the CDS market was quiet on Thursday ahead of the return of the US market and interest rate decisions from the BoE and ECB. When the US did come back from their holiday some weakening was seen in credit spreads as equities fell and ECB"s Trichet warned of inflation in the medium term, after holding rates at 4%.

In the single names traders had to keep their eyes on Alliance Boots, which contacts said was very volatile as KKR met with investors to arrange the loans for its GBP 11.1bln buyout of the company. 5Y CDS on Boots was seen trading around the 275-285 mark early in the day and then quickly widened out around 30bps to trade up at 310. Traders said there was a lot of buying in the name as investors were unsure what would come out of the KKR meeting. Later it was reported that KKR, which is seeking GBP 9.02bln of loans to finance the deal, had to accept limits on the amount of debt Boots would be allowed to borrow relative to its cash-flow through maintenance covenants. Traders said that the market was expecting a covenant-lite transaction. 5Y CDS on Boots was seen at the end of the session around 290/300 (+30bp D/D) with trade at 295. Shortly afterwards S&P downgraded the long-term credit rating on Boots to BB- from BBB and said that it could be cut further leaving the company on CreditWatch negative.

In the Crossover sector 5Y CDS on Ladbrokes tightened 11bp to 165/167 following the announcement that it had experienced a significantly higher level of "High Rollers" telephone betting activity, which was expected to result in an increase in H1 telephone betting profit of GBP 45mln. The company added that it was trading in-line with its expectations, despite challenging conditions for its UK OTC business. Traders said that protection was holding steady between the 165-172 mark and was the best performer in a weaker sector.

Protection levels on the Telecom sector were showing strength, with most names moving 1bp tighter. This included Telefonica, at 26/29, which was reported to be close to signing an exclusive agreement with Apple to provide the iPhone on its networks. This was seen as bad news for Vodafone which had hoped to win the contract and shares were down 2% on Wednesday"s close. Despite this 5Y CDS on Vodafone was 1bp tighter at 26/29. Traders said that there had been little trade in Telefonica, or any of the names. Also 1bp tighter were BT at 34/37, France Telecom at 21/24, KPN at 45/48 and Telecom Italia at 42/45.

In the Energy sector it was reported that Enel and its partner Acciona, would appeal some of the conditions imposed by the Spanish regulator on their bid for Endesa. Spain"s National Energy Commission late on Wednesday said that it had given Enel and Acciona 12 conditions on their planned bid. There was no reaction in CDS with Enel at 16/19 and Endesa at 17/20.



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