Monday, January 08, 2007

LBO rumors now swirling around the entire S&P 500...

Or so it feels...

Home Depot bonds continue to get crushed, although it would seem odd that you'd hire a new CEO so he can negotiate with a private equity buyer. I don't own the name so I'm not following it too closely, but what seems more likely is an aggressive leveraging up. Their 2016 issue went from something like +75 before Thanksgiving to +100 right after the LBO rumor surfaced, to +123/120 now.

Yesterday I heard Target might be a, ahem, target. Dunno if that was pure rumor or not. The CDS moved 4bps wider, which doesn't seem like much, but its from 7/10 to 11/14. Take it for what its worth.

The story is similar with Federated Department Stores. A buyout of Federated has been out there before. Looks like cash bonds are about 3 wider and CDS about 8 wider today.

Cash bonds in Alltel seem to be stabilizing, but the credit curve is steeper. Before the LBO story, the '12's were 155/145 and the '32's were 270/260. Now the 12's are quoted 150/145 and the '32's are 295/285. The '32's are about 5-10bps better than 2 days ago. CDS are getting completely destroyed by comparison. On 12/28, 5yr AT CDS were 70/73, now 117/120. So I riddle the readers this: why are the '12's, which are basically 5-year bonds, unchanged while the CDS are getting hammered? Normally you'd assume it has to do with covenants, and Alltel does have a non-subordination covenant. This means that the company cannot take on new secured debt without also securing existing debt. Is someone making a play that Alltel will tender their existing bonds in the event of a buyout? If so, why haven't the '32's and '16's performed better? Both are about 25bps wider.

Speaking of Alltel, I found the following story from Businessweek back in December:

One outfit wired as the next takeover, some say, is Alltel, a Little Rock provider of telecom services, mainly in small towns and rural markets. "Its widely used CDMA [code division multiple access] wireless technology makes it a natural target for Verizon -- also a user of CDMA," says Tavis McCourt of investment firm Morgan Keegan. Verizon, he says, would profit from its "substantial customer base and extremely profitable operations."

Of course, it was December 2004.

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