Credit Markets Update: Repsol spreads fluctuate on disposal plans

The cost of credit protection on Spanish energy company Repsol fluctuated in a 50-basis point range yesterday, as traders took different stances on the impact of its planned disposal of a 23% stake in Spanish energy company Gas Natural.

But overall, credit default swaps on Repsol tightened more than 100bp during the week from 530bp/590bp on Monday to 410bp/490bp today. The company will retain a 24% stake in Gas Natural.

Moody’s said on Thursday it would maintain its review for possible downgrade on Repsol’s long-term Baa2-rated debt. The agency said the disposal placed further pressure on Repsol’s ratings, as Gas Natural earnings are perceived as more stable that Repsol’s Latin American investments.

Repsol’s ratings were put on review for possible downgrade in April due to concerns about the company’s exposure to Argentina. Repsol five-year credit default spreads hit a high of 575bp/650bp on May 7.

But the Gas Natural disposal was greeted favourably by some traders since it will reduce Repsol’s debt by around €6 billion. The cost of protection on Repsol debt was slightly tighter in relatively low trading today. Spreads on Gas Natural protection tightened by between 5bp and 10bp.

Elsewhere, five-year credit default swaps on E.ON widened 4bp yesterday to 38bp-mid following the German utility’s €7.3 billion bond issue on Thursday. E.ON traded slightly tighter today to 35bp-mid. A number of buyers were purchasing both the new issues and protection, said a credit derivatives trader at Commerzbank in London.