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EUR CDS Flow - AstraZeneca bond issue pushes spreads wider
Informa Global Markets - Bondwatch Morning Insight (Europe) (September 7, 2007)

Thursday saw both the ECB and the BoE decide to keep rates on hold, a much expected outcome which had little affect on the CDS market. Contacts said that the iTraxx Crossover index had traded slightly wider ahead of the rate decisions but had done little since.

CDS spreads in the single names market were moving wider as investors digested the first corporate bond issue for a long while. AstraZeneca announced the successful sale of a USD 6.9bln issue, which traders said caused 5Y CDS on the pharmaceutical firm to more than double to 30/32 (+18bp D/D). AstraZeneca said that the proceeds would be used to repay a "significant portion" of its debt from the USD 15.2bln acquisition of MedImmune. Contacts said that the CDS widened due to the "sharp jump" in the cost of funding that AstraZeneca, which is rated AA-/A1 by S&P and Moody"s, incurred. Reports said that this cost compared unfavorably with the weighted average cost of 5.4% attached to its previous USD 13bln commercial paper programme. It was rumoured that AstraZeneca may now consider Euro funding in the future, subject to market conditions. Contacts said that AstraZeneca was the first such rated corporate to issue fresh supply and that this had a knock on effect on other companies which were expected to be the next issuers coming to market. This was especially true for the firms that had large acquisitions that needed to be funded.

This was evidenced in the Auto sector by a 9bp jump wider in the 5Y CDS of Continental to 54/59, with trade seen at 53. Contacts said that protection widened because the company still needed to raise funds to finance its purchase of VDO from Siemens. Note 5Y CDS on Siemens was flat at 23/26.

In the TMT sector contacts said that spreads moved wider, with BT, Vodafone and Telecom Italia the main under performers. 5Y CDS on BT was 3bp wider at 45/49, with trade at 48, Vodafone was 2bp wider at 45/49, with trade at 49, and Telecom Italia was also 2bp wider at 57/62. Traders said that these companies were viewed as the most "ready to come to market" with new issues. A contact said that the widening in Vodafone was not really attributable to reports that the company faced a USD 2bln tax bill from its purchase of Hutchinson Essar.

In the Energy sector Enel reported that H1 EBITDA rose 2.5% Y/Y to EUR 4.46bln, which was slightly ahead of expectations. This was not enough to prevent 5Y CDS on Enel widening 4bp to 42/46. CS



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