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EUR CDS Flow - Single name CDS market calms after widening
Informa Global Markets - Bondwatch Morning Insight (Europe) (July 20, 2007)

The single names CDS market was broadly unchanged on Thursday with a slightly stronger tone reappearing after Wednesday"s push wider. In the news there was plenty of takeover speculation and a handful of earnings releases kept things interesting.

After grabbing the headlines on Wednesday the Consumer sector was less busy but still served up a few movers. 5Y CDS on Wm Morrison was 7bp wider at 78/82, despite reporting that like-for-like sales excluding fuel for the 23 weeks to 15-Jul rose 3% Y/Y, stating however that sales growth had slowed since its last update. Traders said that the widening was a result of the name catching up with Sainsbury"s move on Wednesday, coupled with rumours that it could itself be the target of a certain Robert Tchenguiz or that private equity is interested.

Elsewhere 5Y CDS on Sainsbury continued to widen to 130/137 (+15bp D/D) following reports that Delta (Two) may be considering a bid at GBP 6.00 per share excluding a 7.35p dividend. Following on from the other main M&A news concerning Altadis and Imperial Tobacco, it was reported that CVC plans to make a counter bid later in the year for Altadis to rival Wednesday"s recommended EUR 16.2bln offer from Imperial Tobacco. 5Y CDS on Altadis was flat at 56.5/59.5, as was Imperial at 50/53.

In the Financial sector traders said that senior 5Y CDS on Aegon was 2bp tighter at 23/25, following the confirmation of its exposure to US sub-prime related securities. Contacts said that Aegon had been underperforming the market as rumours about its exposure had pushed spreads wider. Aegon said late on Wednesday that it holds about USD 4.2bln in asset-backed securities linked to the US subprime mortgage market and that its exposure to securities issued in 2006 and 2007, the two years that have been causing the most problems, was limited. Contacts said that this was less than the market had feared and thus the CDS spread tightened 5bp from its widest on Wednesday.

Elsewhere in the sector Barclays said that it was considering possible alternative structures for its offer for ABN Amro, including the introduction of a partial cash consideration element. Senior 5Y CDS on Barclays was at 13/15 and sub was at 19/22 (flat D/D), whilst ABN senior was at 10/12 (flat D/D) and sub was at 15/17 (-1.5bp D/D). Barclays also said that it had been granted an extension to the deadline by which it must announce its formal offer documentation. The deadline was moved to 6-Aug from 23-Jul, whilst the Dutch regulator confirmed that the deadline for the RBS consortium would remain on the 23-Jul. Senior 5Y CDS on RBS was at 12/14 and sub was at 19/22 (flat D/D).

Another M&A rumour doing the rounds on Thursday concerned Continental in the Auto sector. Traders said that 5Y CDS on Continental was 8bp wider at 55/58, and was trading actively, following rumours that the company was a target for private equity group Blackstone.



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