The price of credit-default protection on VNU, the world's largest market research company, blew out more than 60 basis points Tuesday after it announced details of new financing arrangements. The plans raised concerns new debt to be issued by VNU may not qualify for deliverability under existing credit-default swaps. If not, the contracts could be worthless--a situation known as CDS orphaning (DW, 5/5).
VNU is issuing new debt to help finance its recent buy-out by a consortium of private equity firms (DW, 3/10). A USD835 million eight-year callable senior note will be issued by Neilson Finance and a USD835 million senior subordinated discount note by Neilson Finance Co. It is not yet clear if the new debt will be subordinate to existing bonds at the parent level, or whether they will qualify for deliverability in a CDS contract.
Traders said five-year credit-default swap spreads widened to 333 basis points Tuesday from 271 bps the day before and 260 bps the previous week. One London-based trader said fast money accounts, particularly hedge funds and prop desks, were big buyers with some playing the curve and placing steepeners, selling three-year protection and buying five year.
As part of the refinancing, VNU last week de-listed its shares from public stock exchanges and froze employee pension plans. There are also rumours of widespread layoffs across a number of divisions. The company is rated B1 by Moody's Investors Service and B plus with credit watch negative by Standard & Poor's.
