Credit-default swap spreads on Sabre Holdings Corp. blew out after the world's largest travel-services provider announced Tuesday it had agreed to a private equity acquisition. "Sabre spreads have been getting wider and steeper all week," said one credit derivatives trader Thursday, noting massive trading volumes from all kinds of accounts throughout the curve.
Traders reported heavy protection buying out to 10 years because the deal leaves USD800 million of existing debt outstanding. "Buy-and-hold debt holders got crushed," said one trader, noting the acquisition announcement surprised the market. Five- and 10-year CDS spiked from about 100 basis points each on December 8 to 350 bps and 480 bps, respectively, as DW went to press.
Traders said the CDS market reaction to the USD5 billion leveraged buyout by Texas Pacific Group and Silver Lake Partners was similar to last summer's USD4.3 billion purchase of Cendant Corp.-spinoff Travelport by Blackstone Group. Five-year Travelport CDS was trading at about 330 bps Thursday.
"Given the companies are similarly sized--and similar overall--with a similar purchase price and similar cash flow, there is the possibility of the same rating," said John Moore, senior analyst at Moody's Investors Service in New York, who placed Sabre's Baa3 ratings on review for possible downgrade Tuesday. He said the completion of the transaction in the second quarter of next year could trigger a multiple-notch downgrade to B2--Travelport's rating. Standard & Poor's also adjusted its credit watch from stable to negative on its BBB rating.
