17 July 2014 by HCM
Before the tragic news of the Malaysian airlines being downed weighted heavily on the whole market, today was a day where idiosyncratic risk was prevailing. Among the names in the news, ITVLN (ITV Plc) was one of the biggest movers. It emerged overnight that Liberty Global has acquired from BSkyB a 6.4% stake in the company for £481mln. Investors assumed that this will lead at some stage to a takeover of the company, even though it represents a large asset compared to Liberty’s size. If it was confirmed, in line with Liberty’s financial policy, the Opco would probably be leveraged (around 6 times was an estimated level) which would then inevitably lead to a widening of the risk premium, possibly to 250bps (if VMED is any guide). On the back of that, the 5 year CDS of ITVLN jumped 40bps wider to 128bps. Until now, ITV was an unleveraged asset, with only short dated bonds, and most people’s fear was orphaning. In the CDS market, being orphaned does not necessarily last forever.