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Derivatives

Citizens Widens On Uncertainty

Default swaps referencing Citizens Communications flurried in an otherwise quiet week of trading. Strong demand for five-year default protection on Citizens caused the price to jump up over 100 basis points to 162 basis points-172bps as DW went to press on Thursday from 60bps the previous week. Citizens is not usually a widely traded name, but the last week has seen it in the top two-to-three most traded credits. Traders expect the spread to widen further if the uncertainty surrounding the company's future continues.

There were even some enquiries about credit-default swaps with 10-year maturities, from traders looking to execute curve trades.

A company announcement 10 days ago that it was looking to hire a financial advisor to assist the company in exploring 'strategic alternatives' caused the jump. Market professionals said nobody knows the exact definition of 'strategic alternatives,' and that is half the reason why the spreads have gapped out so much. Eric Geil, analyst at Standard & Poor's in New York, said, "It can mean a whole lot of things."

S&P has placed Citizens' BBB rating on CreditWatch negative with negative implications. Geil said it will remain like that until Citizen's plans are clearer. He added that given the maturity of the sector an expansion could mean it was taking on more risk.

Five-Year Credit Protection On Citizens Communications

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