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Cash Is Cheap And They Know It

26 September 2016 by lberuti

Away from financials which are still attracting most of the headlines at the moment, LXSGR (Lanxess AG) was the only idiosyncratic mover in the European credit market. The German specialty chemical group agreed to buy one its smaller rivals, US based Chemtura Corp, for €2.4Bln in an all cash transaction in a bid to become a leader in the additive business. It was no secret that LXSGR has been seeking over the last few years to diversify away from synthetic rubber – a sector it dominates – and the acquisition of the lubricant additives and flame retardant specialist will do exactly that. LXSGR’s stock reacted positively and closed roughly 7% higher. Credit investors were a bit more guarded. While Moody’s said the Chemtura deal was positive for LXSGR’s risk profile and affirmed the company’s Baa3 ratings, the perspective of €1.5Bln to €2Bln of new senior and hybrid bonds soon reaching the market led them to push LXSGR’s 5-year risk premium 8bps wider to 66bps. Meanwhile, the broader credit market was feeling weak, as financials once again weighed on sentiment after it was reported over the week-end that Mrs Merkel ruled out state aid for DB and refused to step into the bank’s legal case with the US DoJ.