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Will Tesco Be In iTraxx Crossover 23?

23 October 2014 by lberuti

TESCO’s ( Tesco Plc ) miserable second half of 2014 continued today. Accounting issues surfaced in September and drove its 5 year risk premium from 90bps to 140bps. During a conference call today, investors learned that these irregularities had been going on for more than 6 months, that their impact was larger than initially thought (not by much, but still… ) and that they had adversely impacted the task of rejuvenating the company. They were also told that first-half earnings plunged 41% amid slumping sales both at home and internationally, and little detail were provided on the CEO’s strategic plan for a turnaround. The resignation of the chairman did little to calm the market, and the shares lost 6.5% in London, while the 5 year CDS was pushed back to its widest levels. The latter was not helped by the fact that both Fitch and Moody’s downgraded the company to BBB- and kept their outlook negative. Cash holders will now be worried about a potential junk status, and, if the 5 year risk premium were to stay at current levels, TSCO could leave iTraxx Main to join iTraxx Crossover next March.