Five-year credit-default swap spreads on U.K. grocer Safeway tightened substantially as news of an accepted takeover bid from Wm Morrison Supermarket hit the market. Mid-market swaps narrowed to 50-60 basis points on Thursday from 80-95bps earlier in the week. Traders said volumes spiked approximately to three times typical levels of two to three trades per day. The rest of the retail sector took a hit last week, however, with many announcing poor December sales. Five-year mid-market protection on Dixons Group widened to 100bps Wednesday from 80bps earlier in the week as it announced a profit warning. The news had a knock-on effect as protection on retailer Kingfisher widened to 90bps/105bps from 75bps/90bps and German retailer METRO Group to 130bps from 115bps.
The planned acquisition should be positive for Safeway's debt ratios as Wm Morrison has little debt, said Omar Saeed, analyst at Standard & Poor's in London. In addition, the takeover should give Safeway scale which would allow it to compete with J. Sainsbury and ASDA. S&P is still in the process of deciding what effect the acquisition will have on Safeway's credit rating, Saeed said. The decision would depend on meetings with the management. Safeway is currently rated BBB plus by S&P and Baa1 by Moody's. Wm Morrison is not rated by S&P.
Five-Year Credit Protection On Safeway