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ITV Tightening Stands Out Amid Rising Protection Prices

01 Dec 2006

The price of protection on U.K. broadcaster ITV's debt slumped last week in spite of slight widening of credit-default swap spreads across the board.

The price of protection on U.K. broadcaster ITV's debt slumped last week in spite of slight widening of credit-default swap spreads across the board. Spreads have been compressed due to record levels of collateralized debt obligation issuance, but ITV has been bucking the trend by widening dramatically on news of a bid from NTL two weeks ago and last week pulling in while the rest of the market was beginning to widen.

Last week saw ITV spreads pull in 15 basis points to 91 bps while the iTraxx Hi Vol reached 49 bps, creeping up from 43 bps at the start of last month. Although traders agreed ITV was bound to tighten once the bid threat had been repelled, "It's overdone," commented one London-based trader. Five-year spreads on ITV had jumped from a bid/offer midpoint of 90 basis points two weeks ago to 174 bps on news of the NTL bid. "It was a moment of panic, people were simply buying on the upside," said one trader. But last week this tipped into a rush to sell off ITV protection. The risk of another bid has not gone away, he noted, suggesting it may still be worth holding onto protection. ITV is rated Baa3 by Moody's Investors Service and an equivalent BBB minus by Standard & Poor's and Fitch Ratings.

Separately, several London traders also noted interest in buying one-year protection, apparently coming from bank loan desks looking to hedge over year end. One trader estimated 90% of CDS trading is of five-year swaps, so anything shorter always gets the market's attention.

01 Dec 2006