The price of protection on Tribune Co. tightened about 40 basis points last week after news emerged that Los Angeles billionaires Eli Broad and Ronald Burkle are joining forces to make a preliminary bid for the Chicago-based media company. The name was trading around 200 basis points before the first round of initial bids were due last week. At one point, the name hit 160 bps before coming back to 185 bps on Thursday morning.
There was protection selling because institutional debt investors seem to prefer a deal led by the pair over other private equity bidders. That's because of the likelihood they will sell the rest of the company piecemeal, reducing the amount of total debt that will need to be piled onto the financing package.
Traders reported that investors were also putting steepeners on the name with institutional clients selling five-year protection and buying seven-year protection. Steepeners, however, have been popular across a range of names in the last few weeks (DW, 11/6). "With the credit curve where it is, if you are not putting on steepeners right now, you are weird," said one trader.
If the news had broken a few months ago, suggested one market participant, the movement would have been greater. "At the end of the year people become more risk averse and lay low which might be another reason that short-term single-name bets have slowed down in general," said another trader.
