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Derivatives

High-Yield Vol Drives Ineos Protection Wider

The price of protection on high-yield British chemical company Ineos Group blew out more than 20 basis points early last week, after bond holders snapped up protection in reaction to increased volatility in global high-yield markets.

The price of protection on high-yield British chemical company Ineos Group blew out more than 20 basis points early last week, after bond holders snapped up protection in reaction to increased volatility in global high-yield markets. The volatility was triggered by the release of robust U.S. data on new home constructions which heightened fears about interest-rate rises.

Ineos is a highly leveraged and therefore high-beta credit, which traders said made the spread movement in the name more pronounced than other high-yield entities. One official noted market nervousness on credits across the chemical sector. Another added Ineos led widening on the iTraxx Crossover, which climbed to 283.93 bps Tuesday from 281.75 bps Monday.

Five-year CDS spreads on Ineos jumped to 472 bps Tuesday from 450 bps Monday and from 417 bps the week before. The sharp rise was triggered last week, when weakening sentiment in the high-yield space and poor showings by equities and commodities hit Ineos' bonds. Its 7.875% bonds reached all-time lows of 93.5/94, traders noted.

In addition, the company this week released its 2005 and first quarter 2006 results which were slightly below some expectations and created nervousness among investors, said Khaled Zitouni, analyst at Standard & Poor's in Paris. He also noted in the past two weeks Ineos has brought two subsidiaries, Ineos Chlor and Ineos Vinyls, under common control and announced the expansion of an ethylene capacity at its olefins complex at Köln, Germany. "They are all psychological factors," Zitouni added.

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