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Duke Spreads Widen After It Misses Earnings Targets

03 Aug 2003

Credit-default protection on Duke Capital, the intermediate holding company of Duke Energy, widened 25 basis points last Wednesday following market disappointment over the corporate's second quarter earnings announcement. Five-year protection on the name moved out to 166bps, from 145bps where it had traded seven days before, said a New York-based trader. "Duke's earnings only missed its target by a little, but the sentiment was that their earnings call didn't go well," he explained.

Duke moved against the trend, with most names continuing to tighten on technical factors, said the trader. Recent news has shown positive trends in the economy as well as for fundamentals. Duke is not among the most liquid names in the default swap market and collateralized debt obligation structurers do not frequently pick the name, this means that there is not demand from the structured credit arena to sell protection and drive in spreads. As a result the energy firm could continue to widen.

Robert Hornick, senior director at Fitch Ratings in New York, said that ratings on the corporate were not affected by its most recent earnings call. Fitch has Duke at BBB on negative outlook. The outlook on the firm continues to reflect concern about its sizable portfolio of merchant generation, as well as the corporate's international operations, said Hornick. Fitch would like to see the firm reduce its merchant exposure through assets sales, according to Hornick, but he thinks that is unlikely. Entering into more contracts to sell output from its power plants would also be desirable.

Five-Year Credit Protection On Duke Capital

03 Aug 2003