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Derivatives

Nokia Spreads Tighten On CDO Bid

Five-year credit-default protection on Nokia continued to tighten last week, outpacing its European mobile peers as strong collateralized debt obligation bids pushed in credit spreads on the world's largest handset maker. Nokia had tightened about five basis points to roughly 30-40bps last week, prior to an Enron-induced widening which pushed the entire European market out five basis points further. Traders said Nokia had tightened considerably in the last two weeks or so, as a handful of structurers assembling CDO assets picked the credit. "Investors don't like Ericsson and Alcatel anymore, but because of diversification requirements you need telecom in there and Nokia has become a real favorite," said one. At its widest earlier in the year, Nokia traded at 70bps, while Alcatel was at 360bps. The entire sector has tightened, but Nokia has come in about 60% in comparison to Alcatel's 30.

Nesche Yazgan, a telecom equipment analyst at Deutsche Bank in London, said Nokia's credit position is the strongest among European handset providers. "It's in another ballpark--on the handset side it's the only company that is making money right now, compared to the rest of the crowd it's in much better shape and has a very good wireless infrastructure business." The Finnish company is rated A1 by Moody's Investors Service and A by Standard & Poor's.

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