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What A Round Trip

16 October 2017 by lberuti

Today was a particularly quiet session. iTraxx Main traded in a 0.25bps range for 10 hours, which tells you the whole story. There were a few patches of activity though. In Europe, TSCOLN ( Tesco Plc ) was by far the biggest mover in the investment grade universe. Its 5-year risk premium closed the day 12bps tighter at 109bps following the announcement of a £700mln tender offer. The company is offering to buy its bonds in GBP – with a particular focus on their 2042 and 2057 maturities – and one bond in euros maturing in 2019. The rationale for the buy-back reads as follows: “the offers are being made in the context of Tesco’s continuing efforts to strengthen the balance sheet and are aimed at efficiently using surplus liquidity to reduce debt”. Moody’s said that the tender could cut leverage by 0.2 times and was credit positive. Today’s measures will help the company accelerate towards the management goal of once again being an investment grade company. For reference, TSCOLN’s 5-year risk premium was last trading below 120bps in late 2014, before the profit warning that ultimately sent them to junk in 2015, and it hit 325bps in 2016. What a turnaround story…