Credit-default swap spreads on Spanish oil and gas major Repsol YPF went on a roller coaster ride last week, widening about 50 basis points early in the week before coming back about halfway later in the week as Argentina finally devalued the peso and the country's crisis intensified. Five-year protection on Repsol, which bought Argentina's YPF in 1999, was quoted at 225-235bps Thursday, down from 250-260bps earlier in the week. It had been as tight as 200bps the previous week. Volume in Repsol has increased fivefold so far this year.
Traders attributed the spread widening to the devaluation and a potential 25% tax on YPF oil exports. "If they're going to impose a 25% tax on YPF, then that really [hurts] Repsol," said one trader. However, the credit bounced back after Argentina asked Repsol and other oil companies to make a one-off contribution instead of the oil tax. Still, one trader said further weakness could come, as the left-leaning government struggles for cash. "The biggest fear is they will go whole-hog and nationalize YPF," he said.
Jeremy Hawes, a European oil and gas analyst at Moody's Investors Service, said investors are currently evaluating four financial pressures on Repsol: domestic price and foreign currency controls, tax and devaluation concerns. "If they are all imposed, there likely will be a material impact on Repsol's operating profits," he said. Moody's rates Repsol Baa1 with a negative outlook, while Standard & Poor's has the company at BBB plus with a stable view.
Five -Year Credit Protection On Repsol YPF
Source: J.P. Morgan
