Five-year credit protection on Heidelberger Zement, the German cement producer, widened about 100 basis points over the last week, blowing out to 510 basis points/530bps last Wednesday from 375bps/450bps a week before. On Monday, the company announced it had cancelled plans to sell its building materials division, HBE, and on the same day Standard & Poor's downgraded the parent to BBB minus from BBB. After these negative credit events, spreads began widening to 450bps/480bps, traders said. They added that volume was low, however, since the name is so illiquid, and a few trades caused spreads to widen substantially.
Arndt Muthreich, head of investment-grade research at Dresdner Kleinwort Wasserstein in London, explained that the cancellation of the HBE sale was one factor in the credit rating downgrade because the sale was intended to help reduce the parent's debt burden. The company decided to keep the business, he said, because it determined that the loss in EBITDA from selling it cancelled out the positive effects of debt reduction. The key factor in stabilizing its credit rating is the company's future plan for refinancing debt, Muthreich said, adding that Heidelberger has said it has EUR900 million (USD969.53 million) in debt coming due this year.
