14 September 2016 by lberuti
Back in March, METFNL ( Metro AG ) announced that it would proceed with a demerger, in order to separate its food business (Food Co) from its Consumer Electronics business (CE Co). METFNL held a conference call on the 6th September to give further details regarding the operation. All the financial liabilities of the group including bonds will be assumed by Food Co. Pension liabilities will be allocated 40% to Food Co and 60% to CE Co. Lease obligations will be 60% and 40%, and cash balances 75% and 25% respectively. Even though METFNL’s management expects both companies to maintain an investment grade rating after the spin-off, there won’t be any capital increase. That means that Food Co, due to the high debt load, will have at best weak credit metrics for its rating category and will be left with very limited financial leeway. Moody’s is understood to effectively ask the management to do more if Food Co is to be eligible for IG rating. That is probably why METFNL which will reference Food Co going forward has underperformed its peers during the last week.
Meanwhile, the broader credit market spent another day looking at US interest rates. It dithered all session, and was unable to decide whether to go wider or tighter. Credit indices traded in a range (328/335 for iTraxx Crossover and 69/72 for iTraxx Main) and eventually closed bang in the middle of it.