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Wider, But Only Just

13 December 2017 by lberuti

Apathy continued to reign in the credit derivatives market ahead of the central banks’ meetings today and tomorrow. Risk premia are mired at their post crisis tights on both sides of the Atlantic. While there is obviously a lot of focus on the Fed in the interest rates market leading up to the statement which will be released later today, there was not much interest in creditland on the potential implications of the US tax reform on the Fed policy, or consequences of higher dots to December 2018 than the market is currently pricing. In fact, most of the activity took place following media reports that President Sergio Mattarella will dissolve parliament by the end of the month to allow elections to be held in Italy on March 4, bringing worries about a victory of the Five Star Movement to the fore. The yield of Italian 10-year government bonds jumped 9bps compared to the yield of their German equivalent, and Italian financial institutions all saw their risk premia pushed wider. The 5-year CDS of Unicredit, Generali, Intesa and Mediobanca all ended the session weaker amid concerns about further political turbulence down the road, but it all took place in a very orderly fashion and daily variations were contained.

Boardroom Unrest

11 December 2017 by lberuti

Today was a slow session as far as credit derivatives were concerned. Credit indices traded sideways, and the same was true was most single names. XRX ( Xerox Corp ) was one of the very few entities that sparked investors’ interest. Back in 2016, Carl Icahn convinced it to break up. The document technology business, including printer and copiers, became XRX and separated from the business processing outsourcing division, which became Conduent Inc. A follow-on settlement was reached with the nomination of one of Mr Icahn’s deputies, Mr Christodoro, to XRX’s board. However, the truce was called off today. Mr Christodoro resigned from his position, and will seek to be renominated along with three other Icahn backed dissident candidates at XRX’s 2018 annual meeting due in a few months. The intentions of the activist investor are not known, but it is possible that he wants XRX to sell itself now that it has been independent from Conduent for more than a year. He could also push it to divest assets and raise funds for share buy-backs. In any case, more leverage is a distinct possibility. XRX’s 5-year risk premium jumped by 16bps to 180bps. It is not back to the 230bps level at which it was traded 4 weeks ago, but the recent tightening trend came to an abrupt end.

GVC Gambles On Ladbrokes

07 December 2017 by lberuti

Today’s session was all about LADLN ( Ladbrokes Coral Group Plc). Its 5-year CDS finished the day 79bps tighter to close at 146bps. Months of speculation around a possible takeover by GVC eventually ended with the company offering 160.9p a share in cash and stocks. The deal will also include Contingent Value Right loan note which could be worth up to an extra 42.8p per share. It will depend on the outcome of the British government’s review on Fixed-odds betting terminals. The upshot of this clause is that the much-feared conclusion is now far less relevant to LADLN’s fortunes than it was before. Because of this uncertainty, LADLN had so far drawn a large short base, and there was obviously capitulation among them. Analysts believe the new combined entity could be BBB-/BB+ rated and could therefore trade in the 120/140bps area. However, the wildcard here is that LADLN’s debt gets taken out and the entity orphaned. In which case, its CDS could experience another large leg tighter.

The Fall Of Sky’s Risk Premium

06 December 2017 by lberuti

According to press reports, a deal between DIS ( Walt Disney Co ) and 21st Century Fox could be announced as early as next week. The deal would be worth north of $60Bln on an enterprise value basis and include Fox’s studio, some of its television networks, regional sport networks as well as its stakes in Hulu, Star India and SKYLN ( Sky Plc ). Fox has also been in talks with CMCSA ( Comcast Corporation ) regarding assets sale, but DIS is seen as a better strategic fit with less regulatory hurdles. Given the unexpected roadblock antitrust regulators put in front of the AT&T-Time Warner deal, selling assets to DIS seems like the safest road ahead for Fox and the Murdoch family. As part of the deal, DIS is said to be interested in owning all of SKY, which, given Fox’s 39% stake, would only make the company comply with the UK Takeover Panel rules which effectively compel DIS to make an offer for the remaining 61%. With DIS’s 5-year risk premium trading between 30 and 35bps, investors considered 60bps was far too high for SKY’s and they sent it 16bps tighter to 46bps over the last two trading sessions.