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Derivatives

Metso Spreads Blow Out On Equity Stake News

The price of protection on Finnish conglomerate Metso Corporation blew out by more than 80 basis points last week following an aggressive acquisition of a stake in the corporate's equity.

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The price of protection on Finnish conglomerate Metso Corporation blew out by more than 80 basis points last week following an aggressive acquisition of a stake in the corporate's equity. Swedish asset manager Cevian Capital and financier Carl Icahn announced on Thursday they had taken a position in the company, thought to be about 4%. Traders said Cervian and Icahn have bought equity in other European corporates with a view to splitting their businesses up. Market players were concerned this might be their intention with Metso, explained traders.

Traders said bank prop desks and hedge funds responded to the news by buying protection. Spreads widened from 120bps last Tuesday to a high of 170bps during trading on Wednesday, in response to rumors of the Icahn and Cevian stake. Metso was trading at 155bps as DW went to press on Thursday.

Standard & Poor's rates Metso at BB plus and Moody's Investors Service gives the company a Ba1 rating. Alf Stenqvist, analyst with Standard & Poor's in Stockholm, confirmed the rating of Metso two weeks ago in a research note. Stenqvist noted acquisitions or poor performance at the firm would be the most likely causes of a rating downgrade, according to the report.

Elsewhere in the credit derivatives market, a high level of trading activity continued on the European iTraxx indices last week, but traders said spreads are slowly pulling in because panic over hedge fund losses is subsiding. The iTraxx Europe Crossover spread tightened 50bps last Wednesday, closing at 350bps.

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