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Tesco: From Bad To Worst

11 December 2014 by lberuti

Risky assets staged a rebound today, or at least they marked a pause in the slide which begun earlier in the week. Unfortunately for TSCO’s ( Tesco Plc ) investors, the general sentiment improvement was not enough to stop the rot with regard to the equity price (down another 2.5% today and almost 10% since Monday) nor with regard to the 5 year CDS, which was another 5bps wider at 188.5bps (52bps wider since Monday). At the beginning of the week, the management team revised down the guidance for 2015 by roughly £500mln and rating agencies put the company under review for downgrade, with the potential to push it into junk category. The verdict should come early January, after more clarification has been given on potential balance sheet repair plans. Some in the market took heart from slight tweaks in the management’s language who are “no longer ruling out a right issue” (compared with their previous “we are not doing a right issue”) and who “understand the importance of an IG rating” (compared with their earlier “it is too early to commit to an IG rating”). But flows were relatively one sided so far, and overall people were not ready to call the bottom yet.