Credit-default swap spreads on France Telecom tightened to less than 100 basis points on Tuesday after the telco's recent rights offering. The move is part of a general tightening, but is still a huge shift bearing in mind France Telecom was trading at over 300bps in mid-2002. CDS traders said the entire credit-default swaps market saw extreme tightening early in the week, but the market became negative on credit in general after Federal Reserve chairman Alan Greenspan expressed deflation fears Wednesday. France Telecom followed this trend and widened back out to 115bps/120bps Thursday from about 95bps mid-market on Tuesday, traders said.
Overall it was a quiet week, with the main driver of activity being investors putting cash to work. And traders were mixed on what would happen to spread levels for France Telecom. "Most investors think the fundamentals don't justify these levels--it's the technicals pushing levels tighter," said one trader. Another trader said the spreads might drift out slightly wider but would not return to 250-300bps levels again.
Raymond Hill, telecom analyst at Fitch Ratings in London, said long term improvements for the credit are possible over the next few years as management is moving toward its goal of improving cash flow generation, which should reduce debt. He said the agency needs to see savings of operational costs and capital expenditure constraints. "We want to see surplus cash flow to pay down debt," Hill explained, adding, that the trajectory for rating changes is likely to head upwards.
Five-Year Mid-Market Protection For France Telecom
