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Derivatives

Credit Spreads Spike On Sears

Five-year credit protection U.S. retailer Sears Roebuck jumped by more than 100 basis points last Wednesday versus the previous week's levels over concerns about the company's ability to access the capital markets. Five-year default swaps on Sears widened to 450 bps, up from 305-315 where they were trading the previous week, said one trader.

The widening was triggered by a skeptical response to information contained in a 10-Q Sears filed with the Securities and Exchange Commission last week. In particular, investors were concerned about Sears ability to issue commercial paper, noting that its outstanding cp position has fallen under USD100 million, which is significantly lower than previous levels.

Lingering concerns about the retailer's cancellation of an appearance at a retail conference and larger than expected losses in its credit card portfolio, also continue to affect protection on the name, he added.

Proprietary trading desks and hedge funds have been particularly active in trading Sears, as well as other retail names like Nordstrom, the trader noted. Hedge funds particularly have been active buyers in retail names, in anticipation of a weak Christmas season. Protection on other retailers, including Nordstrom, widened 5-10 bps on the week before, he added.

Commercial paper is only one of many avenues whereby Sears can access external funds, making its present levels of little concern, said Jerry Hirschberg, director at Standard & Poor's in New York, which rates Sears A minus on credit watch. S&P's concerns primarily focus on a recent decision by Sears to revise downward forecasts for its credit business, and in particular the Sears Gold MasterCard.

Mid Prices For Sear Roebuck Acceptance Corp

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