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€12bln Can Buy You 6bps

16 March 2016 by lberuti

Ahead of the FOMC meeting today’s session was a bit dull and the credit index option expiry failed to provide any excitement. The market is still consolidating its recent fierce move tighter and risk premia were up across the board. EDF ( Electricite de France SA ) was among the odd ones out. The company’s finances are under strain as falling power prices and rising competition threaten future earnings while it needs to spend €50bln to renovate French nuclear reactors over the next 10 years. Its chief financial officer recently resigned as EDF remains committed to an £18bln atomic-reactor project in the UK, which threatens EDF’s rating if it goes ahead without appropriate self-help measures. So it came as a relief to the market that they could be considering a €12bln capital increase, which is quite significant for a €19bln company. Other sources actually suggested that the “capital increase” would effectively come from cash savings of paying no cash dividend for 5 years. In any case, the news was welcomed by investors who pushed the 5 year risk premium 6bps tighter at 83bps.