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16 February 2018 by lberuti

If you are an equity specialist, Metro AG and Ceconomy AG are two distinct and well identified entities since the hive-down and spin-off of Metro Wholesale and Food Specialists (subsequently renamed Metro AG) out of the old Metro AG entity (currently known as Ceconomy AG) in July 2017. In the Credit Default Swaps market, the situation of contracts referencing Old Metro AG prior to the demerger – they are the ones included in iTraxx Crossover Series 28 – has only been resolved yesterday. The ISDA Determination Committee decided that these contracts will now reference Ceconomy AG rather than the New Metro AG, contrary to what some investors had been thinking. In credit jargon, there will not be any succession event. While Ceconomy does not have directly issued tradable bonds, it remains liable for the bonds issued by Metro AG and Metro Finance prior to the demerger, and the liability will remain in place until July 2022 under the German Transformation Act. These bonds, and currently only them, will be deliverable into the Old Metro AG CDS. The hope of being able to deliver New Metro AG debt (which is a Ba1/BBB- rated company) are now over, and Old Metro AG’s CDS collapsed 20bp to 72bps, their tightest level since mid-2008.