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Credit Market Schizophrenia

25 November 2015 by pdonnat

Gonvarri is walking away from Abengoa SA. The company has no choice anymore and it is seeking protection from its creditors. The CDS is trading the recovery at 15% of the face value. There is more than 8 Billion Euros outstanding debt, some secured. This will be the first credit event in Western Europe since CODERE Fin LUXEMBOURG SA auction the 9 October 2013. Norske Skogindustrier ASA, the paper company from Norway, could follow in December. This is a bad day for credit investors. The tone in the single name credit derivatives market was weak in Europe and a lot of investors a selling risk. At the same time, the beta is pushing credit indices tighter. The basis, the difference between the index and the single names is the casualty of the day and a reflection of the market schizophrenia. It is closing at a level never seen since the global financial crisis.