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Not What They Expected For Christmas

16 December 2016 by lberuti

Back in March, METFNL ( Metro AG ) announced that it would proceed with a demerger in order to separate its food business from its Consumer Electronics business. The latter will be renamed Ceconomy and METFNL’s shareholders will receive 1 share in the new company for every METFNL share they own. On the back of the presentation made by the management yesterday, it is now expected that almost the entire funded debt of METFNL will remain with the wholesale and food service company – Metro WFS. That means that there will not be a split of CDS currently referencing METFNL. They will reference Metro WFS and not Ceconomy going forward. This is also what triggered Moody’s action, which placed METFNL’s rating on review for possible downgrade. In the absence of more material measures to support MWFS’s financial profile, they suspect that it will not be sufficient to deserve an investment grade at the outset of the demerger. Credit investors apparently did not expect the statement of the rating agency to come out that soon, and they sent METFNL’s 5-year risk premium 17bps wider at 134bps at the close. Even if that is somewhat off the intraday wides of 150bps, that is certainly not what they expected for Christmas.