Credit-default swap spreads on Repsol YPF, a Spanish oil and natural gas utility, blew out last week as investors were fearful of how its links to Argentina would affect the credit. Traders said spreads widened to 500 basis points-600bps in the short-end of the curve, mainly for one- to two-year protection, from levels in the low 200bps range the previous week. One trader said the spreads widened mainly in the short end of the curve because the credit risk is immediate and buyers of credit-default swaps would not want to pay for protection further out.
The widening could be attributed to many factors, including Moody's Investors Service putting Repsol's Baa2 rating on negative review. In addition, Argentina's discussions with the International Monetary Fund have not been productive and the country's economic policy is still not defined, said Emmanuel Dubois-Pelerin, a Standard & Poor's analyst in Paris. Marta Castelli, an S&P analyst in Buenos Aires who covers YPF Sociedad Anonima, Repsol's Argentine subsidiary, said YPF is half the operation of the total company, which is why Repsol's credit risk is affected by events in Argentina. To make matters worse, Repsol has cross-default clauses that state it would incur a default on its bonds if any principal subsidiary defaulted on more than USD20 million of debt obligations.
Dubois-Pelerin said S&P's BBB rating has a negative outlook and the rating agency would downgrade the credit if there is any big fiscal policy change, such as export duties, announced by Argentina that could extract at least USD500 million out of the oil and gas sector.
