Downgrade To Junk Sees Volumes For Metso Jump

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Downgrade To Junk Sees Volumes For Metso Jump

Moody's Investors Service sparked a trading frenzy last week when it downgraded Metso Corp. to Ba1 from Baa3.

Moody's Investors Service sparked a trading frenzy last week when it downgraded Metso Corp. to Ba1 from Baa3. News of the downgrade to junk status caused spreads on the paper industry machinery supplier to widen to 20 basis points on Tuesday and it was one of the most actively traded names by quite a margin, according to an analyst at a German bank.

The analyst said Metso is in a competitive industry and its credit worthiness is being closely watched by the ratings agencies and the market. A trader said, "The downgrade had been on the radar screen for some time and to a large extent the move was already priced in."

Standard & Poor's is also watching Metso and placed its BBB long-term rating on CreditWatch negative at the beginning of the month. Short-term ratings for Metso were adjusted to CreditWatch with negative implications on Feb. 13 and the rating agency published a report that noted the long-term ratings could be lowered by more than one notch. This report prompted spreads to widen to 190 basis points from 170, said traders. Analyst Alf Stenqvist in Stockholm said, "We are currently reviewing data for Metso and we are looking at their strategies." Stenqvist expects to complete the review in a month, but noted that the placing of Metso on CreditWatch negative reflects the likelihood of a downgrade.

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