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Derivatives

Credit Spreads Blow Out On U.S. Buyout Candidates

Credit-default swaps on U.S. corporates rumored to be candidates for leveraged buyouts, including satellite communications firm Intelsat, blew out last week as cash accounts scrambled to buy protection on the debt.

Credit-default swaps on U.S. corporates rumored to be candidates for leveraged buyouts, including satellite communications firm Intelsat, blew out last week as cash accounts scrambled to buy protection on the debt. Five-year credit protection on Intelsat catapulted to 285 basis points Wednesday, out 200 points from where it had changed hands the previous week, said a New York-based trader. Century Bancorp, a regional bank, was also subject to the same rumors and widened to 140bps from 100bps in the same time period, he added.


Protection buying came from all quarters with bond investors looking to offset risk, according to a trader. Even those not exposed to the Intelsat on a single name basis may have been exposed through bond indices, this resulted in even more investors running for protection, he added.


Standard & Poor’s placed Intelsat’s BBB plus rating on negative CreditWatch last Wednesday in response to the corporate’s F-1 filing that stated it may pursue being acquired after it completes its initial public offering, wrote Rosemarie Kalinowski, analyst in New York, in a report. Intelsat filed the F-1 on March 15. "If the potential acquirer is a financial investor, the transaction could materially weaken Intelsat's financial position," she stated. The CreditWatch listing will be resolved upon assessment of the impact of any strategic transactions involving the company, she continued.

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