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Derivatives

Adecco Spreads Widen After Accounting Scandal Fears

The price of credit protection on Adecco, a Swiss recruitment firm, leapt to 325 basis points on Monday from 45bps the previous week.

The price of credit protection on Adecco, a Swiss recruitment firm, leapt to 325 basis points on Monday from 45bps the previous week. At one point during the day, the bid/offer spread was 450/500bps. The price jump was caused by an Adecco press statement, which announced that the corporate's auditors would not be able to complete the audit by the previously confirmed date of Feb. 4, due to "possible accounting and compliance issues."

Credit traders said players across the board were involved in trading Adecco credit-default swaps. By Thursday, the fears had subsided slightly and the spread had tightened to 220bps. In addition, the bid/offer spread had also come in to 15bps. A London-based trader said Adecco protection was expected to continue tightening in the short-term unless the company made further announcements that reignited fears of an accounting scandal.

Standard & Poor's downgraded Adecco to BBB minus from BBB plus on Monday, following the company's statement, while Moody's Investor Service downgraded it to Baa3 from Baa2. An official at Moody's said that all Adecco ratings are on review for further possible downgrade.

Melvyn Cooke, analyst at Standard & Poor's in Paris, said, "The downgrade mainly reflects our concern that we cannot assess the full effect of these potential accounting, control, and compliance issues on Adecco's credit quality, based on information publicly disclosed by the company." Cooke added that the ratings agency is also concerned that the accountancy problems may not be restricted to Adecco's North American subsidiary.

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