Five-year credit-default swap spreads on the world's third-largest food retailer, Ahold, yo-yoed last week after the company announced worse than expected results. Traders said protection jumped out to 270-280 basis points after the announcement but had come back to their original levels of around 225bps by Thursday.
Credit protection volumes rocketed five fold with around USD100 million (notional) of contracts being traded on both Tuesday, the day the third quarter earnings were announced and Wednesday, according to traders in London. Ahold reported a net income of around EUR257 million (USD258 million), which is about EUR40 million below what the market expected, according to analysts.
Hugues de la Presle, analyst at S&P in London, said it plans to keep the food retailer on BBB plus with a negative watch as it had already factored in the weak earnings and thinks the company will improve its financial position next year. The food retailer has EUR1.4 billion of debt maturing next year and intends to only refinance a part of that, which will enable it to free up cash flow, said de la Presle. Significantly the company is not expected to face liquidity concerns because of the expiring debt as it has a USD2 billion back-up bank facility, which is largely undrawn.
Five-Year Credit protection On Ahold
