Credit-default protection on European heavyweight France Telecom widened about 10 basis points last week amid mounting concerns related to the incumbent's stakes outside its home turf that some investors fear could lead to higher debt burdens at the parent company. Five-year protection widened from 160-170bps at the start of the week to 180-190bps by the end of the week. At issue are its minority stakes in wireless providers MobilCom of Germany and NTL in the U.K. "France Telecom might have to guarantee MobilCom's debt and at the moment it really doesn't need any more debt," said one trader, adding, "NTL has had a huge build out [of its network] and there's a concern it could breach its covenants." He quipped, "they've spent a lot of money [sponsoring] the wrong football clubs as well," referring to the Aston Villa Football Club in England.
Aidan Fisher, v.p. and senior analyst at Moody's Investors Service in London, acknowledged some market professionals are concerned about France Telecom taking on any more debt. But he stressed that it has largely been priced into its Baa1 rating. Standard & Poor's rates it BBB plus with a negative outlook.
Five-Year Protection On France Telecom
Source: J.P. Morgan
