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Derivatives

Land Securities' Spreads Narrow On Debt Refinancing

The price of protection on British property company Land Securities narrowed 18 basis points last week to 19bps, on the back of a debt refinancing.

The price of protection on British property company Land Securities narrowed 18 basis points last week to 19bps, on the back of a debt refinancing. On Monday, Land Securities announced plans for a GBP4 billion (USD7.23 billion) commercial mortgaged-backed securitization to pay off some of its existing debt. The CDS premium fell despite a negative ratings announcement on Monday because traders think there could be no debt to deliver in the case of a credit event, which could mean the default swap could be useless to the protection buyer, said traders. The credit ratings agency Standard & Poor's placed Land Securities on negative CreditWatch until the deal is completed, because the credit quality of the residual company after the deal is uncertain.

Land Securities is not a widely traded name, said credit professionals, but protection-holders scrambled to sell credit-default swaps on the news of the deal because it appeared the company would clear its debt. The full details of the securitization have yet to be disclosed and analysts are not sure whether the CDS will be affected. Traders noted, however, other corporates including Nokia continue to trade although they have no bonds outstanding.

Kenneth Mak, an analyst at Standard & Poor's in London, noted there were both positive and negative elements of the deal. "In the short term, the company has gained liquidity and financial flexibility," he explained. Over the longer term the securitized portfolio could impede the corporate's ability to raise secured debt. Moody's Investors Service kept its rating for Land Securities at A3.

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