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Telefonica CDS Update

13 January 2021 by jbchevrel

Telefonica S.A. (TELEFO) is an integrated and diversified telecommunications group operating in Europe and Latin America. Their services include Mobile, Fixed-line, cable, TV. They are mainly present in Spain, LatAm , UK, Germany. As of Q3-2020, TELEFO had €37B net financial debt, down from €38B at the end of 2019. Their EBITDA had averaged a tad above €16B per year over the 2016-19 period and is expected slightly below €14B for 2020. The issuer is rated BBB-/BBB/Baa3. TELEFO had been relatively conservative, piling up cash from €5.7B in 2015 to €9.2B in 2019, while their market cap got divided by 2 over the 2016-19 period. They had about that amount [€9.2B] of cash reported on their balance sheet at the end of Q3-2020. Today it was announced that TELEFO’s subsidiary Telxius Telecom signed a deal with American Tower to sell telecommunications towers division in Europe and Latin America for about €7.7B. The deal, which provides for a commitment to employment by ATC, is meant to include about 30k tower sites. TELEFO’s net financial debt will be reduced by about -€4.6B and net leverage by about -0.3x. As a result, TELEFO 5y CDS tightened by -10bp on the day, at 73bp, thus compressing -8bp vs benchmark iTraxx Main s34. TELEFO shares rose +11%, as today’s announcement shows the Spanish phone company is moving faster to cut its debt pile of €37B, one of the biggest in the industry. Elsewhere, it was a solid session in European credit synthetics [Main -1 XO -11]. The Europcar auction resulted in a 100% recovery driving compression in indices.