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CREDIT COMMENTARY
Nov 04, 2013
Alcatel-Lucent fire spreads tighter
The telecoms equipment sector was once again in focus after Alcatel-Lucent announced a capital increase.
The Franco-American company said it plans to raise over €2bn in funds through a rights issue, a new bond and a revolving credit facility.
Alcatel's spreads rallied 42bps to 290bps, the first time it has tightened below 300bps since 2007. The improvement is all the more impressive given that it was trading well over 1,500bps less than a year ago. Alcatel's management have made a strong commitment to cutting debt and strengthening the balance sheet, and this latest move is in keeping with that strategy.
The capital raising plan is a clear positive development for credit, as the proceeds of the rights issue will be used to cut debt maturing in 2014 and 2015. Shareholders will be less enamoured with the bondholder-friendly financial policy, and the firm's stock fell about 6% today.
Alcatel still trades wider than its rivals Ericsson and Nokia, particularly now that the latter company is selling its struggling phone business. Ericsson is a solid investment grade credit and Alcatel-Lucent is set to remain a high-yield credit for the foreseeable future.
Elsewhere, the Markit iTraxx Europe was 1bp tighter at 83.5bps, with Markit PMIs released today doing nothing to disturb the favourable conditions in the credit markets. We have plenty of economic data scheduled for this week and the ECB decision on Thursday, so we may see some volatility in the coming days.
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