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CDS Report - Spreads tighter, but write down rumours continue
Informa Global Markets - Bondwatch Morning Insight (Europe) (November 30, 2007)

The European CDS market remained nervous on Thursday, though there was some relief in the morning as indices went tighter and some good news from the financial sector helped calm investors. Spreads in the single name world were a touch tighter especially amongst the Crossover and TMT names. It was an interesting day in the Financial sector as two UK mortgage banks released trading up-dates and there were further rumours of write-downs. There was relief in the share price of Alliance & Leicester, which rose as much as 15% after it released a trading up date, following weeks of rumours about BoE emergency funding and more recently a fire sale of assets. The trading statement made it clear that A&L did not need BoE assistance, but the picture was still pretty grim. The bank said that it had in place "additional funding facilities" backed by A&L residential mortgage assets. The bank also said that it would fund asset growth in 2008 through higher customer deposits, which equals more attractive savings rates and thus a decline in margins and earnings. 5Y CDS on Alliance & Leicester was last seen at 197/201. The latest house price growth figures in the UK showed a 0.8% fall and mortgage lender Bradford & Bingley said that the outlook for 2008 was uncertain, but that FY profits would be in line with expectations. 5Y CDS on Bradford and Bingley was last seen around 170bp.

Elsewhere there was a rumour that RBS could announce a GBP 12bln write down causing its senior 5Y CDS to widen 5bp to 70/75 with sub widening 7bp to 92/102. Spreads in the TMT sector were firmer and this included 5Y CDS on Hellenic Telecom which moved 4bp tighter to 54/58 despite recording a fall in Q3 net profit. However, the company showed solid operating performance. Elsewhere 5Y CDS on ProSiebenSat.1 was flat at 255/275 after its Q3 figures missed expectations as it posted a Q3 loss on German cartel fines. Later the company said that it could beat analyst expectations for 2007 EBITDA, excluding SBS.

In the Consumer sector Kingfisher followed fellow UK retailer DSG, by announcing its Q3 trading up-date. The company reported that Q3 profit was unchanged, which was better than analysts expected, as growth in France and Poland offset declining UK earnings and a loss in Asia. Shares in Kingfisher rose 5.2% but its 5Y CDS was flat at 133.5/138.5. The Crossover sector had its fair share of earnings releases including FKI, Kabel and Cognis. 5Y CDS on FKI was 5bp tighter at 340/350 after it said that H1 operating profit before special items rose 26.2% Y/Y and on Cognis protection was also 5bp tighter at 540/550 after it posted a 11.6% Y/Y gain in Q3 EBIT. 5Y CDS on Kabel Deutschland was 15bp tighter at 440/460 after it reported that Q2 adjusted EBITDA rose 16.4% Y/Y. There was some widening seen in 5Y CDS on United Utilities, which moved 3bp to 60.5/65.5, after its senior unsecured credit ratings were cut to Baa1 from A3 by Moody's and to A- from A by S&P following an announcement of a GBP 1.5bln capital return. The company also reported that H1 operating profit from continuing operations rose 4.6% Y/Y. CS



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