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CREDIT COMMENTARY
Jan 13, 2014
Morrison widens under hedge fund pressure
UK supermarket chain WM Morrison was a notable underperformer on Monday amid reports that it could restructure its property portfolio - to the detriment of credit investors.
An activist hedge fund is reported to have built up a large stake in Morrison, which lagged its peers during the crucial Christmas period and was already under pressure due to the poor sales figures. The value of Morrison's property assets far exceeds its market capitalisation (more than twice the value according to some estimates). Morrison owns the freehold of 90% of its properties, and it would be no surprise to see this figure reduced through sale and leaseback agreements. But the hedge fund is reported to be pushing for Morrison to go further and spin off the assets, with the proceeds returning to shareholders.
Sale and leaseback transactions are normally viewed as credit negative, so the reaction of the credit markets today was to be expected. Safeway Ltd, the entity under which Morrison trades in the CDS market, saw its spreads widen 17bps to 95bps. Safeway Ltd is one of the less liquid names in the Markit iTraxx Europe, though the latest news could result in increased activity.
In the US, corporate activity triggered a rally in an iconic US company. Beam Inc, the owner of Jim Beam bourbon as well as several other major spirit brands, agreed to be acquired by Japanese drinks company Suntory. Both the credit and equity markets welcomed the deal - Beam's CDS were 10bps tighter at 44bps.
Overall, the Markit CDX.NA.IG was 1bp wider at 65bps, while the Markit iTraxx Europe 1bp wider at 71.5bps.
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