05 October 2015 by lberuti
ICECR (R&R Ice Cream Plc) was introduced in iTraxx Crossover Series 22 a year ago. Since then, its 5 year risk premium has almost only known one way: tighter. It touched 400bps on October 2nd 2014 and never looked back, moving to the 150-220bps range where it seemed to belong since early April. The final stage was reached today when NESTLE( Nestlé SA ) announced that they are discussing with PAI, ICECR’s owners, to create a joint venture that would operate in 20 countries with activities encompassing ice cream and frozen food. That was great news for investors who own risk in ICECR as its risk premium collapsed following the report. The 5 year CDS tightened 68bps to 170bps, and should soon be worth sub 100bps. But the situation also illustrates the difficulty in adding new and less liquid names to credit indices. In the most likely scenario, the “on the run” series of iTraxx Crossover will reference a name that is dead box and hardly trades for the next 6 months.