The cost of insuring European corporate debt against default hit a 3-month high on Friday, as investors continued to fret about the unravelling of the subprime mortgage sector.
The turbulence claimed yet another victim: on Thursday, Caliber Global Investment, a London-listed fund, said it would sell its assets and return capital to investors after a review that was triggered by an $8.8m net loss from subprime investments.
The Itraxx Crossover index of 5O mostly junk-rated credits widened as much as 11.5bp to 234.5bp in mid-morning trade.
Contracts on FKI‘s debt rose 3bp to 183bp after the reports the London-based company could receive a 147p a share takeover bid in the coming days.
ProSieben Media, Germany’s biggest private broadcaster, saw its CDS widen 18bp to 175bp after Fitch downgraded its debt to high-risk.
But at least one single-name moved tighter. The cost of insuring Valeo‘s debt against default fell 15bp to 63.5bp after reports takeover talks with buyout house PAI had collapsed. Private equity groups tend to significantly lever up the companies they acquire, and higher debt burdens increase the risk of default on existing debt.
Meanwhile, the LevX index of credit default swaps on European leveraged loans traded below par for the first time on Friday. The iTraxx LevX Senior index traded at a mid-price of around 99.90 early on Monday, as investors bought protection against defaults on the riskiest loans.
The LevX index, run by International Index Company, comprises 35 equally weighted loan credit default swaps (LCDS) referencing first-lien loans. It was launched in October and traded at a high of 101.56.