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"Faute De Grives, On Mange Des Merles"

22 February 2017 by lberuti

There are some instances where investors only have limited options when they want to invest in a story. NVFVES (Novafives) is one such example. It designs and supplies machines, process equipment, and production lines for aluminium, steel, glass, automotive, aerospace and metalworking sectors. It is a private company and has no listed equity, but it has some debt outstanding, and CDS referencing it can be written. So when the company announced two orders for a smelter expansion project by a major aluminium company in the Middle-East, investors decided to add some risk and used CDS to do so. They sent NVFVES’ 5-year risk premium 46bps tighter at 507bps over 2 days. Given the impressive performance of the company’s CDS since the beginning of December (it is the equivalent of roughly 10pts in cash terms) when the company released its last set of numbers and suggested it might be close to sealing a deal in the Middle-East, the magnitude of the move left many scratching their heads. But with the roll only a few weeks away, technicals are what they are and the current 5-year CDS might be a better instrument to express a positive view than bonds are at this juncture.