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JNY In Unchartered Territory

17 April 2014 by HCM

Sycamore Partners, the private equity firm, offered to acquire JNY (The Jones Group Inc) back in December 2013. Since the deal was officially approved by JNY’s shareholders early March, the 5 year risk premium has been on a steady path and has risen consistently despite the general move tighter of the credit market. JNY’s risk premium previously belonged to the 350-450bps category. But as is often the case, once that 350-450 range is broken, 450-550 is a kind of no man’s land and the widening trend is tough to reverse until the risk premium reaches the next level which consists in trading in points upfront. This eventually happened to JNY yesterday, and it closed today at 3.25pts (or roughly 625bps using our convention of 100 coupon for the 5 year CDS). We should now see high yield buyers of risk emerge, who can try and catch what has been so far a falling knife.