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Will RSH Revive Off The Run CDX Indices?

02 December 2014 by lberuti

Since mid-October, RSH’s ( RadioShack Corporation ) risk premium has been rising steadily, but that happened in fairly low volumes and the recent weakness was nothing usual in the US HY space which has been put under more pressure than its European equivalent. Today, events took a turn for the worst regarding the future of the company. RSH received a notice from one of its lenders that it fell out of compliance on a $250mln loan. There was no clarity on what the actual breach is, but that was enough to send the 5 year CDS more than 4 points wider. Indeed, the relationships between RSH and its creditors has been tumultuous to say the least, since they undermined the company’s turnaround plan to close 1000 stores. At 70 points upfront, protection on RSH now trades at truly distressed levels. Together with HET ( Caesars Entertainment Corp ), that is the second name in the CDX IG series 5 to 7 that does so. It looks inevitable that volumes will go up on these legacy indices, as people who own them will want to avoid the hassle of managing a default (even though it is a very smooth process). And a default of any of these 2 names will occur sooner rather than later.