24 April 2014 by HCM
The focal point of the credit market during the European hours was ALOFP (Alstom SA) whose risk premium continues its rollercoaster ride. Overnight Bloomberg published an article mentioning that GE (General Electric Company) would be mulling over a $13bln bid for the French company. That sent the 5 year CDS tumbling tighter at the open, and the first transactions took place around 80bps, a healthy 120bps tighter than the previous day’s close. It eventually stabilised around 110bps, after it emerged that GE might only be interested in the energy assets of ALOFP and people begun to affect probabilities to the different possible outcomes (deal with GE going through, emergence of another suitor, selective sale of assets, nothing happening, …). In any case, ALOFP owning “sensitive” technology and being French, a takeover will not be a walk in the park. It will take some time and there will be more twists. After the dramatic 5 year CDS move which followed January profit warning, it is the second move in excess of 50bps of ALOFP’s risk premium. Things will certainly calm down a bit before volatility resumes, but investing in ALOFP is not for the faint-hearted.