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Protection On Finnish Industrial Widens

Moody's Investors Service sparked a trading frenzy in the credit derivatives market last week when it downgraded Metso Corp. to Ba1 from Baa3.

Moody's Investors Service sparked a trading frenzy in the credit derivatives market last week when it downgraded Metso Corp. to Ba1 from Baa3. The downgrade to junk caused default-swap spreads on Metso, a Finnish company that supplies machines to the paper industry, to widen 20 basis points to 190 basis points. The credit was one of the most actively traded names by quite a margin, according to an analyst at a German bank. He says Metso is in a competitive industry and its credit worthiness is being closely watched by the ratings agencies and the market as a whole. A trader added, "The downgrade had been on the radar screen for some time and to a large extent the move was already priced in."

Standard & Poor's placed its triple-B long-term rating on CreditWatch negative at the beginning of the month. Short-term ratings for Metso were adjusted to CreditWatch with negative implications on Feb. 13 and the rating agency published a report that noted the long-term ratings could be lowered by more than one notch. "We are currently reviewing data for Metso and we are looking at their strategies," says Alf Stenqvist, an analyst in Stockholm says. He expects to complete the review in a month.

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