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Financial Cooling

18 August 2016 by pdonnat

Galapagos Holding is a German industrial group servicing the heavy industry with three subsidiaries: Kelvion - specialized in heat exchangers -, Enexio - specialized in power cooling - and DencoHappel – specialized in air filtration -. To be more familiar with these businesses, you can attend Chillventa – the exhibition for energy efficiency, heat pumps and refrigeration next October in Nurenberg. This companies were bought by Triton, the private equity fund, in 2014. Triton is active in restructuring its portfolio of industrial companies. DencoHappel will be sold to Flakt Woods, just bought by Triton. Flakt Woods is a Swedish company specialized in industrial air handling units. The proceeds of DencoHappel's sale will cool a lot Galapagos credit risk even if Galapagos will lose some diversification being focused on heat and cooling systems which sales have been declining recently. However, as you can see on the attached grapple, the 5Y CDS tightened 6 points (around 200bps). The CDS is trading since 2014, when Triton bought the companies. It could be an orphan CDS if Triton keeps restructuring its portfolio or go to hard default if the business is turning sour. CDS on LBO structures are used to have a quick binary outcome, well ahead of the 5Y standard CDS maturity, orphaning or defaulting. We can expect more cooling and heating stories from Galapagos in the years to come.