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Derivatives

Sears Suffers Spread Blow Out Amid Credit Concerns

Five-year credit-default swap spreads on U.S. retailer Sears Roebuck blew out last week, precipitated by credit concerns voiced by the firm during an earnings call. Five-year default swaps were trading at around 380 basis points last Wednesday, having gone as wide as 430bps earlier in the day, and up from 290bps where they were sitting before credit concerns were raised.

After Sears posted weak results, rumors began circulating that the firm was pulling out of a retail conference, leading Wall Street to view the retailer as suffering from management problems, noted one trader. "For the real money guys there is a crisis of confidence, with Sears needing to restore its market credibility," he added. Most trading has been dealer driven with traders hedging positions.

Thomas Razukas, senior director at Fitch Ratings in New York, which has the retailer at A minus on negative watch, agreed the market is concerned by Sears' stated problems with its credit. In order for the firm to be taken off negative watch, Fitch would have to be confident the retailer has control over its credit operations and there are no negative surprises waiting to be reported. How successful Sears is in building receivables in its Mastercard program will also be closely studied, he added. Fitch plans to review its rating on the retailer in the short term.

Five-Year Credit Protection On Sears Roebuck

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