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Good News or Bad News: Which Do You Want First?

13 July 2018 by jbchevrel

Today Xerox was said to consider the sale of its leasing unit, which sounds like a positive news for credit investors out of context, because it could relieve the firm of about $3.6b in debt. However, in this particular case, the potential sale would be done in order to make Xerox more attractive to potential acquirers and would enable PEs to lever up the company more afterwards. On the back of that report published by Reuters, Xerox’s 5Y CDS came c20bp so far in this session. A high likelihood of an LBO is negative for credit, going forward. XRX is an old member of the CDX IG index, being a component since the series s11. The name has a $1.3b cleared open interest, according to OTC Streaming. Meanwhile the global CDS indices tightened on short capitulation/gamma selling, ahead of next Wednesday's credit index option July expiry.