Safeway LBO puts spotlight on need for protection in IG bonds

摘要

Investors have been put on high alert regarding the need for covenant protection in investment-grade corporate bonds, after being rattled by last week's US$9.4bn LBO of US grocer safeway and last month's scare when time warner cable was saved at the eleventh hour from a hostile bid. News that Cerberus Capital Management's US$9.4bn acquisition of Safeway, US$7.6bn of which will be in debt, sent the grocery operator's CDS premium gapping out more than 52bp, to close at 344bp on Thursday. Although most of Safeway's bonds have change of control (CoC) language, its US$150m of 7.45% 2027s and its US$600m of 7.25% February 2031s do not.