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On The Red

09 April 2019 by jbchevrel

Today the 5y CDS of Crown Resorts Ltd (CWNAU) widened by c22bp, thus clearly underperforming the iTraxx Australia index (+0.5bp). This is as the Las Vegas casino empire Wynn Resorts Ltd is in talks to buy CWNAU for cAUD10B as Wynn looks to grow in APAC. The proposed deal values CWNAU at a c25% premium, given its market cap was AUD8B pre stock move. As a result, CWNAU shares soared +20% in Sydney. The impact on CDS is trickier, market makers seemingly expect CWNAU to get closer to Wynn’s (Z-spread on the 4.25 2023s is north 200bp), but one risk to that view would be if CWNAU gets ringfenced, as is Wynn’s Macau business (WYNMAC). Another risk may be that the deal does not happen, as the parties have not come to terms yet. Indeed, Wynn had even said that the talks were suspended, but the consensus is (seemingly, looking at price action) for a deal. As we are seeing a Ba3/BB- name potentially acquiring a BBB/BBB/Baa2, a potential downgrade is also high on the cards for CWNAU if the deal goes through.