The price of credit protection on France Telecom tightened five to 10 basis points early last week on the back of rumors the French government was considering lending the company EUR9 billion (USD8.93 billion) in the form of a mandatory convertible that it would purchase. Mid-market swap spreads tightened to 295bps on Wednesday morning from 305bps Monday as investors perceived the potential cash infusion as a positive for the credit. Convertible arbitrage fund managers were not out in force purchasing protection because the rumored convertible is not guaranteed to materialize but even if it does, it would have a mandatory conversion.
Barry Murphy, telecom analyst at Bear Stearns in London, said the company is reviewing how it will resolve its debt situation this week. If France Telecom agrees on a definitive plan, investors likely will react even more positively, which will result in credit-default swap spreads and cash bond spreads tightening.
The credit-default swap market was quiet in general last week because investors were focused on the cash market as Vodafone Group and Tesco issued new bonds, traders said. Although the tightening in protection on France Telecom was small, it was the single name that saw the most movement. Traders said that the volume of trades, however, was not significantly higher than normal on the credit, as volumes in general were thin.
Five-Year Credit Protection On France Telecom
Source: CreditTrade
