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NSINO’s Roller Coaster Ride

23 January 2015 by lberuti

Since the beginning of the year, NSINO ( Norske Skogindustrier ) has been one of the best performing credit. This was attributed to different factors that currently benefit the company: the falling price of energy (they use a lot of it) and the falling price of the Norwegian Krone against the USD and the Euro (while less than 10% of the group’s revenue are generated in NOK, more than a third of their production capacity is located in Norway). But yesterday we got what is probably a more convincing explanation of this stellar performance. The management announced the launch of €250mln Senior Secured Notes due in December 2019. They will use the proceeds in an offer to exchange existing bonds for a mix of cash and 2021 notes in a bid to extend their debt maturity. If the take up of the offer is large, the exchange will result in a material strengthening of NSINO’s balance sheet, increasing liquidity, pushing out existing maturities and reducing net leverage. When the news first broke, there was speculation that the new bonds, which will rank senior to existing bonds included in the offer, would be issued out of a new box. The 5 year CDS hit an air pocket yesterday at the close on the back of these orphaning fears and traded down 12pts, from 38pts to 26pts (that is a 800bps tightening). As these fears dissipated today, NSINO’s risk premium traded all the way back to the previous days’ level, sending it on one of the most spectacular roller coaster ride we have been given to witness in a while. In any case, a much reduced funding gap risk in 2015 should result in a steeper curve.