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Orphan… And Then Not

06 February 2015 by lberuti

The 5 year risk premium of SUNCOM (Sunrise Communications) has experienced a fairly bumpy ride over the last few years. It has move up and down like its fellow crossover names of course, but it also hit some air pockets at times, whenever IPO rumours were surfacing and of course when they were confirmed a few weeks ago. Back then people also widely assumed that the entity which has so far issued Sunrise’s debt (Sunrise Communications Holdings SA) would no longer be an active issuer. With the existing unsecured notes called as part of the IPO financing, it had “orphan” written all over it. On top of the obvious deleveraging story, this was one of the reasons for the collapse of SUNCOM’s 5 year CDS to 100bps. Today the IPO took place, putting a large smile on the face of the investors who subscribed, as the stock closed 12% higher than its issue price on its trading debut in Zurich. It was a different story for people who kept some exposure to the CDS though. Indeed, the borrowing entity of the new post-IPO secured 2022 notes will eventually be… Sunrise Communications Holdings SA. That sent SUNCOM’s CDS 40bps wider to 138bps. Unlike us humans, a CDS is orphan until it is not.