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Bad Die Hard Habits

10 July 2017 by lberuti

MTNLN (Matalan) released their Q2 trading update this morning. The numbers came in better than expected, but they were certainly not strong enough to warrant a 206bps tightening (or 7 points upfront as this name used to belong to the distress category) to 704bps. Even though management did not discuss refinancing during the call with analysts, a story published by the FT suggested that a group of hedge funds are looking at refinancing options for the company which may lead to orphaning. This group of credit-focused investors would have sold large amounts of Credit Default Swaps referencing Matalan Finance Plc – the entity currently used by Matalan to issue debt – and the certainty that this entity would not default would enable them to reap large profits. They would have offered to fully support any refinancing of MTNLN’s existing debt so long as Matalan issues the new debt out of a new entity. That is the kind of deals that have marred the CDS market in the past and make a mockery of the market place’s efforts towards more transparency. People familiar with the company said its management was unlikely to accept the funds’ plan, let’s hope they are right!