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What About Rallye’s Rally?

20 October 2016 by lberuti

Yesterday, RALFP ( Rallye SA ) launched a new €200mln convertible bond. It was not your typical CB, as the company announced a non-dilutive cash-settled bonds exchangeable into COFP ( Casino Guichard Perrachon SA ) shares. The deal was priced on the most favourable terms to investors initially indicated, but the fact that it was successfully launched is a good example of the bullish sentiment in the lower reaches of the credit barrel. Once the deal appeared to be done, RALFP’s 5-year CDS went 1.5pts tighter (it is currently trading in upfront format plus a 500bps coupon). The 5-year risk premium of RALFP was effectively indicated 64bps tighter at the close. But this innovative structure raised a few eyebrows and refreshed the divided opinions on the name. The tightening came to a halt today and the bullish momentum was lost during the session as buyers of protection emerged at these tighter levels. Meanwhile, the broader credit market had a solid session. Credit indices confirmed yesterday’s gains and closed tighter across the board, particularly iTraxx Crossover which closed 4bps tighter at 319bps. Indeed, during his press conference, Mr Draghi said nothing to discourage investors from taking more risk.