Shorter-dated bond and credit default swaps of troubled Spanish energy group Abengoa rallied sharply early on Wednesday, after an IFR report that three banks had agreed to underwrite a right issue assuaged concerns over a potential default.
Five-year credit default swaps on Abengoa traded some 1,600bp tighter at around 4,400bp, or around 52 points upfront, according to Citigroup pricing, as investors sold protection on bets the capital increase would go ahead. The company’s 8.5% bond due in March 2016 jumped 20 points to 90% of face value.
“We have seen a pretty strong rally in the CDS and the bonds, which suggests people are more hopeful of a positive outcome,” said one London-based credit strategist.
Credit Agricole, HSBC and Santander have agreed to a standby underwrite for a proposed €650m capital increase, sources with knowledge of the situation told IFR on Tuesday.
Abengoa is a member of the iTraxx Crossover index and has been one of the most actively traded names in the credit markets in recent weeks, with as much as US$100m of daily trades, according to DTCC data – about 10 times more liquid than the equity.
Contracts for the capital increase have not been signed, and Bank of America Merrill Lynch and Citigroup are also talking to the company but have yet to come to a final decision on whether to support the deal, the sources said.
Two senior bankers involved with the discussions said that the success of a rights issue would depend on moves to improve Abengoa’s capital position through asset sales, potentially including a reduction in the group’s stake in Abengoa Yield, the US listed entity that contains the group’s operating assets.
Abengoa has already committed to completing €500m of assets sales by the first quarter of 2016.
