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22 July 2019 by lberuti

GALAPG (Galapagos Holding S.A.) was a member of iTraxx Crossover series 22 to series 30. Owned by funds managed by Triton, a private equity group, it is the holding company for the operating companies of Galapagos SA, which is a global manufacturer of heat exchangers for industrial applications in sectors ranging from oil and gas to food and beverages. On June 15th, GALAPG did not make an interest payment due under some of its notes and failed to cure this situation during the contractual 30 days grace period. The situation was swiftly brought to the ISDA Decision Committee’s attention on July 17th and last Friday the DC issued a statement confirming that a Failure to Pay credit event took place. It did not come as a big surprise to any investor as the 1-year default probability of GALAPG implied by the price of CDS has been above 70% for the past 3 months and above 90% since their missed payment. It is the third default in quick succession of companies that were included in some series of the iTraxx Crossover – after Newlook and Rallye – and that certainly shows that cheap money is not necessarily enough to maintain any highly leveraged entity as a going concern.