28 May 2020 by jbchevrel
Today Pearson plc (PSON) was the worst single-name CDS in the Main. The 5y contract is wider by +34bp to 134bp. PSON was pricing GBP350m of a new 10Y (June 4, 2030) fixed coupon note at 355bp above Gilts. The guidance had been in the UKT + 370bp area, the books were above GBP3.7b. The issuer is Pearson Funding PLC guaranteed by Pearson PLC and the ratings of the note are expected to be: Baa2/BBB-. As ESG is an increasingly trendy scheme, it is worth noting that these 2030s are part of the PSON’s social bond framework. This Social Bond Framework has been created by PSON and aims to comply with ICMA Social Bond Principles, setting out that any bonds issued under it will be spent on projects whose primary objective is to advance the UN’s SDG 4 –Quality Education. Pre covid (2/21) PSON CDS was 65bp. it peaked close to 170bp (c2c). it has now retraced c35% of the initial widening, while it had retraced as much as c81% of that move, earlier this month. That is to be compared with a c73% retracement of the iTraxx Main index, over the same period of time, neglecting the roll. The RV 5y PSON/Main is marking a new top of the post-roll range of [5bp , 64bp]. the previous local high in this RV, post-roll, was 50bp. Yesterday, PSON estimates was cut again at Berenberg to reflect likely “severe disruption” to college enrollments in 2020 from coronavirus impact and PSON stock was downgraded to Sell. Bloomberg reported that broker Berenberg’s analyst said she assumes a -10% decline in student enrollment in fall 2020, and sets estimates at -22% below consensus for 2020 and -7%/-8% lower for both 2021 and 2022. She also noted that the falling US birth rate is likely to see declining number of university students in 2nd half of decade.