Credit-default swap spreads on German chemical company Degussa plunged and trading volumes picked up to record levels last week after the market interpreted a government announcement as paving the way for the company going public.
Five-year CDS tightened to 72 basis points Wednesday from 95 bps a week earlier as a variety of investors scrambled to cover short positions. Spreads opened wider Thursday at about 85 bps and traders said they expect the name will trade within a range of 75 bps to 100 bps until the deal is finalized.
Germany's decision late Monday to cut coal mining subsidies and close the country's remaining coal mines by 2018 is expected to speed up the initial public offering of RAG, a mining, energy and chemicals conglomerate, of which Degussa is a part. Analysts said RAG's IPO appeal depends on shedding its coal mining unit.
Francois Lauras, analyst at Moody's Investors Service in London, said the separation is good for the chemicals unit and could speed up the timeframe for an IPO, but added the separation was already factored into Degussa's rating. "It's far from finalized and there is still a lot of uncertainty," Lauras said. Moody's maintained its Baa3 rating and negative outlook. Standard & Poor's has a BB rating and stable outlook.
In other news, traders reported a quiet week after the U.S. Federal Reserve decided Wednesday to hold interest rates. In a short burst of trading Thursday, indices pulled in slightly and single names followed suit, but traders said volumes were thin. The iTraxx Crossover tightened to 195 bps Thursday from 205 bps Wednesday, and HiVol was about 2 bps tighter.
