CDS of New Look rallied sharply on Monday after the fashion retailer announced bond issuance out of a new entity, raising the chance credit protection would be left without deliverables.
Amid exceptionally thin markets, the cost of five-year CDS on New Look was trading at bid-ask spreads of around 115bp–155bp, compared with 272bp–292bp late on Friday.
“The chances of an orphaning event are heightened, because New Look has chosen to issue out of a separate entity,” said one credit strategist. “It may be that the company chooses to redeem the old bonds with the proceeds of the sale.”
There are net US$225bn of New Look CDS outstanding, according to DTCC data, against £2.6bn of gross notional.
Following its recent acquisition by Brait SE, the UK clothes retailer is looking to raise £1bn-equivalent of senior secured bonds, split into sterling and euro seven-year, non-call-three, fixed bonds and a euro seven-year, non-call 1, FRN tranch, alongside £200m of 8NC3 senior unsecured bonds.
The new deal will refinance New Look’s £788m-equivalent of existing bonds, sold in May 2013, and its £375m PIK loan. The high-yield bonds became callable last month, but new owner Brait indicated that it could use a portability clause to keep them in place.