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EUR CDS Flow - Sainsbury widens on Delta Two due diligence
Informa Global Markets - Bondwatch Morning Insight (Europe) (September 21, 2007)

Contacts said that credit spreads moved tighter on Thursday buoyed by a slightly more positive sentiment in the markets. In the single name CDS arena traders said that spreads initially widened as contracts rolled, which was expected, but that this was soon forgotten as levels returned to be relatively unchanged on the day. Investors were also buoyed by the pricing of two new issues, which were well received, and the return of some retail activity to the CDS market.

The big mover of the day was Sainsbury, which stole the spotlight in the Consumer sector from the H1 results of Kingfisher, Morrison and Pernod-Ricard. 5Y CDS in Sainsbury jumped 40bp wider to 200/210 following the news that it had allowed Delta Two to perform due diligence after receiving a revised offer proposal of GBP 6.00 a share in cash. Shares in Wm Morrison rose 4.1% on Wednesday's close after it announced a 57% Y/Y jump in H1 operating profit before property gains, but its 5Y CDS was unchanged at 60/65. Also releasing results was Kingfisher, which posted a 6.2% Y/Y rise in H1 adjusted pre-tax profit leaving its 5Y CDS flat at 85/90. In contrast 5Y CDS on Pernod-Ricard was 2bp tighter at 62/69 after posting an expectation beating 21% Y/Y rise in FY operating profit.

In the Industrial sector 5Y CDS on BAA tightened in 7bp to 70/75 following comments from its Spanish parent Ferrovial with regards to the refinancing of BAA. Traders said that Ferrovial's announcement that it was prepared to sell an airport caused BAA's bonds to tighten as they are guaranteed by the airports, so to sell an airport would involve the permission of the bondholders or a buy back. One of the new issues to price was BASF"s EUR 7yr bond, which late on Tuesday priced at m/s +52bp. This was followed by E.ON on Thursday which priced a 10Y issue at m/s +85 and a 5Y issue at m/s +60. Traders said that this issue had priced "extremely cheaply". 5Y CDS on E.ON was 2bp tighter at 29/31.

In the Financial sector senior 5Y CDS on Northern Rock headed tighter to around 70bp after the UK Treasury confirmed that its guarantee for depositors would also cover wholesale funds. Elsewhere 5Y CDS on HBOS was seen trading 3bp wider at 43bp after rumours of funding difficulties, which it called "complete an utter nonsense". Late on Tuesday Deutsche Bank said that it had "made mistakes" and in Q3 would book charges on leveraged loan commitments, which the bank cannot resell in the current credit market environment. Senior 5Y CDS on Deutsche Bank was at 32/37 (-4bp D/D) and sub was at 47/52 (-11bp D/D).

In the Crossover sector contacts said that 5Y CDS on Kabel Deutschland was 5bp wider at 445/465, after moving out as much as 30bp in the morning, following the announcement that it agreed to acquire some cable networks from Orion Group for EUR 585mln. Traders said that this may require some refinancing in the future but that CDS levels had not yet reflected this. CS

 

 

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