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LBO, The Return?

21 September 2016 by lberuti

In an otherwise fairly uneventful session, TDCDC ( TDC A/S ) was one of the standout names, with large amounts of risk changing hands. The company just hired banks to advise on a possible improved offer by Apollo Global Management. The buyout firm made an initial approach that was rejected in July and they are considering a higher offer for the Danish phone company. Things appear to be hotting up, and, in the event of a takeover by a private equity group, the leverage would most likely increase significantly. While it is too early to speculate on a capital structure, TDCDC’s status as an investment grade company would almost certainly be at risk - some analysts speculated it could drop to B+, well into junk category -. Since these rumours begun a week ago, stock investors enjoyed a more than 10% rally, but credit investors have not had the best of rides. TDCDC’s 5-year risk premium has increased by 32bps, even if 15bps are arguably due to the roll that took place in the meantime (on the 20th September the standard 5-year maturity went from 20th June 2021 to 20th December 2021). Today’s session alone accounted for a 10bps widening from 155bps to 165bps. Meanwhile, the broader credit market mainly traded sideways. The expiry of the credit index options failed to trigger any thrill, and investors were in wait and see mode ahead of the Fed’s decision on rate tonight.