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Sainsbury's Credit Protection Volumes Rocket On Buy-Out Rumors

10 Apr 2004

Credit protection on U.K. food retailer J Sainsbury surged last week on the back of reports in U.K. Sunday newspaper The Observer that Kohlberg Kravis Roberts, the U.S. venture capital company, was interested in buying the supermarket chain.

Credit protection on U.K. food retailer J Sainsbury surged last week on the back of reports in U.K. Sunday newspaper The Observer that Kohlberg Kravis Roberts, the U.S. venture capital company, was interested in buying the supermarket chain. Traders at one bank trading five-year credit default swaps on Sainsbury's said volumes reached around EUR50-60 million by Wednesday, versus typical weekly trading volume of EUR10 million on the name.

The price of protection on Sainsbury's blew out to 56-59 basis points on Wednesday, versus 47/50 bps the previous week. Traders reported strong interest across the market through the week. The price of protection, which was hovering around 53/55 bps on Monday, was pushed higher as hedge funds became interested in protection on Sainsbury, said traders.

Moody's Investors Services placed Sainsbury's A3 rating on review for downgrade on March 26. Standard & Poor's downgraded the company's credit rating to BBB Positive from A negative. Hugh De La Presle, an S&P analyst in London, said the rating downgrade was triggered by the sale of Shaw's, a chain of U.S. food stores which accounted for 18% of the Sainsbury's EBITA last year, and also reflects the increasingly competitive market in which the supermarket chain is operating.

Five-Year Credit Protection On J Sainsbury

10 Apr 2004