The price of protection on U.K. retailer Marks & Spencer ground tighter last week off the back of its first half profits, which came in ahead of expectations. The company recorded a 63% rise in profits, triggering five-year credit-default swap spreads on the name to draw in almost 10 basis points, to 66 bps late last week from 75 bps two weeks prior. "It has been a pretty fantastic move in credit considering it was near 100 bps in September," said one trader.
The spread compression sparked an uptick in protection selling on M&S, with one trader noting activity was driven by correlation players. "It has been relentlessly sold," he said, adding there was activity in the five-, seven- and 10-year spaces. The bid/offer spread also tightened in response and was sitting at 62/65 late last week, said another trader. A credit strategist at a European house said a drop in M&S's equity value had decreased it's attractiveness to private equity players, reducing the risk of a leveraged buyout and in turn pushing CDS spreads tighter.
The draw-in resonated across the U.K. retail market, said one trader, who also noted a tightening of spreads on J Sainsbury, to 65 bps from 71 bps, and Boots Group, to 59 bps from 65 bps.
M&S is rated BBB by Standard & Poor's, BBB plus by Fitch Ratings and Baa2 by Moody's Investors Service. Both Fitch and Moody's have the company on a negative credit watch.
