November 28, 2011 Credit Markets

Risk on readers, risk on. Decent initial estimates of US holiday sales and more European "solution pablum" lead the market down the "hakuna matata let's add some risk" path. Too early my friends, don't buy the hype. There has been no viable solution presented as there is no viable solution. There is no "periphery" issue, only a European issue.

Decent new issue calendar today:


Issuer                                Rating            Size             Mat      Pricing
Scripps Networks               Baa1/A-        $500mm        5y          T+180
National Fuel Gas               Baa1/BBB    $350mm       10y          T+295
Pacific Gas & Electric        A3/BBB+     $250mm       30y          T+160
AGCO Corp-CoC,144a       Ba1/BBB-    $300mm       10y           5.875%
Tesco-CoC,144a                 A3/A-          Bench            3y          T+165-170
Tesco-CoC,144a                 A3/A-           $                   5y          T+180-185
Canadian Pac Railway        Baa3/BBB-   $500mm      10y           T+275
Canadian Pac Railway        Baa3/BBB-   $                 30y           T+300
DTE Energy-$25                Baa3/BBB-   $150mm       50NC5      6.50%

The DTE's are junior subordinated debt ($25 par)where interest can be deferred for up to 20 quarters and callable at par in 2016.

You look at the spreads on the two energy companies and you realize that there is risk beyond their regulated subs (NFG does own timberlands). 

Breadth wasn't all that impressive in the credit markets today as Ig was decidedly negative, HY was almost flat and converts positive on small volume:

 

bottom line - don't like risk here.  The deals brought today are interesting and have decent risk premiums, but I don't see out-performance here.