Cost of insuring against Tesco default leaps
LONDON, Oct 24 (Reuters) - The cost of insuring against Tesco (Xetra: 852647 - news) defaulting on its debt shot up on Friday, after ratings agency Moody's downgraded Britain's biggest grocer and left the troubled group hovering one notch above junk status.
Tesco, which has lost more than 50 percent of its market value this year due to an accounting scandal and a string of profit warnings, saw its credit default swaps - derivatives used to insure against a default - widen by 25 percent on Friday.
Tesco's CDS levels had remained stable on Thursday after the group reported its delayed half-year results, but they shot up on Friday after Moody's and Fitch both downgraded the firm after the stock market closed.
Tesco's 5-year CDS was 34 basis points, or 25 percent, wider at 165 basis points, making it the worst performer on the Main index.
"The ratings remain on review for downgrade because Tesco has not yet announced the outcome of its strategic review of the UK business and how it plans to tackle the longer-term challenges it faces due to the structural changes in the UK grocery retail industry," Moody's said.
Tesco shares were also dented on Friday by a flurry of negative broker comments, down 1.7 percent at 168 pence at 1114 GMT.
Deutsche Bank (Xetra: 514000 - news) cut its price target to 180 pence from 220 pence, while Exane BNP Paribas cut its target to 180 from 190 pence, reiterating their "hold" and "neutral" ratings respectively.
BESI Research cut its "fair value" to 145 pence from 165 pence, maintaining its "sell" stance and stating: "We think Tesco remains at risk of a downgrade in its credit rating to junk status." (Reporting by Kate Holton; Editing by Clara Ferreira Marques)
