The price of default protection on British broadcasting company ITV blew out Wednesday after ceo Charles Allen resigned. His departure increased fears among investors the embattled company will be the target of another leveraged buyout attempt and it led to huge volumes of credit-default swap protection buying.
"The door is wide open for another LBO bid and this is making credit investors uneasy," said one trading official. The company rebuffed two takeover attempts in March.
Five-year ITV spreads widened to 129 basis points Wednesday from 112 bps the week before. One trader noted protection buying at seven-year was also prolific, causing spreads at this tenor also to widen more than 15 bps, to 153 bps Wednesday from 137 bps seven days prior. "The movements in spreads are not earth-shattering, but there is definitely volume going through," said one London-based trading head, adding hedge funds and credit desks have been particularly active in shorting.
ITV has suffered serious equity loses this year on the back of advertising losses in its flagship channel ITV1, explained Alex Griffiths, analyst at Fitch Ratings in London. "There was also a perception in the market that management was weak," he added. The broadcaster's share price has slid from 148 pence to 101.5p this year.
Fitch, Standard & Poor's and Moody's Investors Service all downgraded ITV one notch, to BBB minus from BBB or equivalent, on June 21 when it increased share buyback plans to GBP500 million from GBP300 million.
