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EUR CDS Flow - Carrefour flat despite property float news
Informa Global Markets - Bondwatch Morning Insight (Europe) (August 31, 2007)

There was a flurry of earnings releases on Thursday which made it a busy morning as CDS levels opened a touch tighter. This move was soon erased and contacts said that the market moved wider as there were mainly buyers of protection. The main cause for concern still centred around the possibility that SIV"s might have to sell assets to meet short-term funding requirements, as yet another hedge fund went bust due to its US sub-prime exposure.

It was a busy day in the Consumer sector with earnings releases and news of share buy backs and property spin-offs. Most of this centred around Carrefour which announced in the morning a slight increase in operating profit and that it would list its dedicated real estate vehicle Carrefour Property in 2008. Carrefour also said that it intended a EUR 4.5bln share buy back. Traders said that 5Y CDS on Carrefour was unmoved at 27/29, with trade seen at 29. Contacts said that these announcements should make spreads move wider but as most investors were already short risk on Carrefour there was little activity. 5Y CDS on Sainsbury was 10bp wider on at 120/130 after reports it was considering opening its books to the Qatari backed investment vehicle Delta (Two), which may also have a plan to securitise Sainsbury"s real estate portfolio.

Elsewhere in the sector Altadis and Diageo also released results. 5Y CDS on Altadis was flat at 55/57 after reporting a 7.7% Y/Y rise in Q2 EBITDA and 5Y CDS on Diageo was also flat at 34/37 after it reported an 8.7% Y/Y increase in operating profit.

There was a similar story in the Crossover sector, with a number of earnings releases. After reporting that H1 revenue from continuing operations increased 2.6% Y/Y and that the sale of its Hard Rock business helped increase net profit, shares in Rank Group gained as much as 6.3% on Wednesday"s close and its 5Y CDS was as much as 20bp tighter. Traders said that on Wednesday Rank was getting well bid as investors were not confident in the company, but that the results were better than expected so protection tightened. 5Y CDS on Rank ended at 430/440 around 10bp tighter D/D. Elsewhere in the sector 5Y CDS on Ahold was unchanged at 70/80 after it reported that net income rose more than tenfold, due to the gain on the sale of its US Foodservice business. Shares in Ahold rose 5.5% on Wednesday"s close following the announcement of a EUR 1bln share buy back programme. Contacts said that there was a lot of activity in Grohe, which was still moving wider and was seen trading at 635, around 40bp wider D/D.

In the Energy sector the focus was on Suez after the French president Sarkozy said that he favoured a combination of Suez"s energy unit with Gaz de France, helping 5Y CDS on Suez move 2-3bp tighter to 34, with trade seen at 37. 5Y CDS on GDF was flat at 19/23. Earlier Suez had hinted that it was not prepared to split its waste and water assets. Finally traders said that 5Y CDS on BAA, in the Industrial sector, was around 18bp tighter at 83/88, with trade at 85, following a report that it was preparing a sale of one if its airports and would cut 2,000 jobs.



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