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1 October 2010
EUROPEAN CREDIT ALPHA More answers than questions
Matthew Leeming +44 (0) 20 7773 9320 firstname.lastname@example.org Zoso Davies +44 (0) 20 7773 5815 email@example.com Arup Ghosh +44 (0) 20 7773 6275 firstname.lastname@example.org
This version corrects Figure 3, where the scale was incorrect on the left hand axis.
Strategic Market View: There and back again
+44 (0) 20 7773 9169 email@example.com Aziz Sunderji +44 (0) 20 7773 7881 firstname.lastname@example.org Dominik Winnicki +44 (0) 20 3134 9716 email@example.com www.barcap.com
Driven by mixed signals from the economic and political front credit spreads seesawed this week before finally ending up where they started. Risk aversion remains, but largely driven by macroeconomic uncertainties, while strong corporate fundamentals should provide spreads with a buffer if future growth stays anaemic. Sovereign volatility continues to drive valuation dislocations and we highlight a credit-equity normalisation trade on EDP. For investors worried about poor economic growth, we also recommend going long a basket of selected names with counter-cyclical performance while simultaneously shorting the index as a suitable trade for generating counter-cyclical alpha.
Distressed debt markets – time to grow
We see the European distressed debt market as growing in size. This will come from weak borrowers who survived on forbearance measures and the low rate of Euribor hitting maturity and amortisation points and European banks continuing with balance sheet shrinkage. Also, with the cost of bailing out Europe’s banking systems via bad banks increasingly interlinked to sovereign funding rates, there is further potential for distressed assets to come from both bad banks and distressed banks.
Credit at a glance
Corporates generated just over 50bp of excess returns in September, led by financials and in particular the Tier 1 part of the capital structure. Insurance, which is more heavily weighted towards Tier 1 than banking, was the top performing sector this month – utilities underperformed. Indices were marginally tighter week on week, while investment grade cash was wider. Despite this, our measure of the cash-CDS basis was broadly unchanged as single-name contracts lagged the index tightening.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 22
Barclays Capital | European Credit Alpha
CREDIT VIEWS ON A PAGE
CREDIT STRATEGY CATEGORY
Monetise steep skew, hedge against moderate widening Use bank Tier 1s to boost yield or beta Relative value in step-up bonds Relative value trades between corporates and sovereigns Cyclical hedge in CDS Normalisation trades
1x2 payer spreads on Main to December Despite the rally that has reduced the pick-up to senior, we continue to believe there is value in European bank Tier 1 as a high-beta asset class Switch into Lafarge step-ups: LGFP €7.625% 2014 and LGFP €7.625% 2016s Short corporates trading tighter than their own sovereign (only in AAA sovereigns)
Relative value across ratings buckets Relative value in senior vs subordinated cash
Basket of cyclical shorts vs index: LMETEL (Ericsson), MICH, PUBFP, STM, VLOF, WKLNA, WPP Basket of cyclical longs vs index: BNFP (Danone), ROSW, EXHO, TSCOLN, ULVRLN Yield/credit curves steep at front end, buy short-dated credit Basis trades > -100bp We favour single-B-rated paper and expect it to compress towards BB On capital structures of performing names with secured and unsecured bonds, unsecured tiers look attractive: Buy Ardagh € ‘17, Ineos € ‘16, Europcar € ‘14 and Lecta € ‘14 against secured issues On capital structures of performing names with term loans and pari passu secured bonds, buy the secured bond: Buy Smurfit € ‘17/19 against term loans Loans or short-duration bonds trading sub-par, which we expect to be refinanced Short-duration paper on high-beta credits with strong liquidity Selected name-specific 5s10s DV01 neutral steepeners for borrowers we expect to refinance We favour bonds with cash yield above the current yield of the index Switch into bonds that are closer to maturity to reduce sensitivity to spread widening and curve steepening Switch into bonds with protective covenants, such as change-of-control (CoC) puts and/or step-up coupons Buy outright CDS protection on an LBO target; Buy outright CDS protection on a target and sell protection on a correlated index Implement a CDS steepener on a potential candidate Long equity call options for LBO candidates
Trades on issuers we expect to refinance Returns are hard to find Event-driven trades: LBOs Cash
HIGH GRADE CREDIT RESEARCH SECTORS COMPANIES
Autos Banks Consumer & Retail General Industrial Insurance Pharmaceuticals TMT
Banks, Consumer, Industrials
Telecoms, Media, Technology, Utilities, Pharmaceuticals
OVERWEIGHT – BONDS/SELL PROTECTION – CDS
UNDERWEIGHT – BONDS/BUY PROTECTION – CDS
BMW (CDS), Daimler (CDS) RBS (cash), Commerzbank (cash), UniCredit (cash) Accor (cash), Kingfisher (cash), Rentokil (cash), Metro, BAT, Imperial Tobacco, Tesco (CDS), PPR (CDS) BAA (cash), Finmeccanica, Alstom (CDS), CRH, Clariant (cash), Thyssenkrupp (CDS) Stalif (cash), Llydin (T1), Eureko (bonds), Munich Re (bonds), Zurich (bonds) Roche, Novartis (cash) BT Group, OTE, Telefonica, Lagardère, Swisscom (CDS), Telenor (CDS), Nokia (CDS) EDP, Enel, Gas Natural, Veolia Environnement, REN, Glencore, Iberdrola (CDS)
BMW (cash), VW (cash), Volvo (cash), Michelin (cash) Allied Irish Banks (cash), BCP (cash), BES (cash), Dexia (cash), Monte dei Paschi (cash) Carrefour, Next (CDS), Diageo, Experian (CDS), Carlsberg (CDS) Metso, Akzo Nobel, Bayer, Clariant (CDS), Rolls Royce (CDS), Lafarge, Sanofi-Aventis, Holcim (cash) Aegon (CDS), Hannover Re (CDS), Generali (CDS), Unipol (CDS) AstraZeneca Deutsche Telekom, Vodafone, TeliaSonera, TKA, KPN, STM (CDS), FT, Ericsson, Pearson** (CDS), Portugal Telecom (CDS), Wolters Kluwer (CDS), Ericsson (CDS), WPP (CDS) United Utilities Plc, Suez Environnement, Elia, Verbund, Edison, Fortum (CDS), EnBW (CDS), Vattenfall (CDS)
HIGH YIELD CREDIT RESEARCH COMPANIES
Basic Industries General Industrial
OVERWEIGHT – BONDS/SELL PROTECTION – CDS
UNDERWEIGHT – BONDS/BUY PROTECTION – CDS
Consumer & Retail TMT
Ardagh Glass 2016/2017/2020, Lecta 2014 (sub + snr), M-Real 2013, Smurfit Kappa Group 2015/2017/2019 Evonik Degussa 13s, Evonik Industries 14s, Savcio, HeidelbergCement 2012/2014/2017/2018/2019, Valeo (cash), GKN (CDS) Pernod (EUR) Wind €11.0% 2015, KDG €+700 PIK 2014, Seat €8.0% 2014, Unity €8.125% 2017, UPC €8.0% 2016
Clondalkin Industries 2013/2014, Norske Skog 17s Lufthansa (cash), Air France (cash), Stora Enso, UPM
Ono €8.0% 2014, €10.5% 2014, Unity €9.625% 2019, Virgin Media £7.0% 2014
Note: Recent changes where available are in bold text; *ratings below apply to bonds and CDS (where applicable) unless specified; **Barclays Capital is acting as financial advisor to Pearson PLC in its potential acquisition of Sistema Educacional Brasileiro's school learning systems business. Source: Barclays Capital
1 October 2010
Wholesale inventories GE: Trade balance UK: PPI Tue. of Mich. Car registrations Source: Bloomberg. 13 Oct Casino Q3 sales (after mkt) Thu. PPI UK: Construction PMI US: ISM non-Manufacturing EZ: Retail sales. 6 Oct Thu. 15 Oct US: CPI. Barclays Capital 1 October 2010 3 . Factory orders EZ: Sentix. Retail sales. 11 Oct Company Securitas Sodexo Ladbrokes Release/event 9M results FY results Interim trading update US: FOMC Minutes. EZ: ECB Monthly report Economic data Tue. 5 Oct Tesco Tui Travel Sainsbury H1 interim results Interim sales Q2 sales Wed. 12 Oct Wed. company reports. Small business optimism GE: CPI UK: Trade balance. Empire manufacturing. Jobless claims. 4 Oct Company Release/event Economic data US: Pending home sales. Confidence. Jobless claims EZ: ECB Rates decision GE: IP UK: NIESR GDP Estimate. Unemployment. RPI. Budget EZ: IP UK: Unemployment report US: PPI. Barclays Capital The week after Date Mon. Trade balance. Advanced retail sales. Business inventories EZ: CPI. 14 Oct Carrefour Diageo Roche SABMiller Suedzucker Syngenta Q3 sales Interim statement Q3 sales Q2 sales Q2 results Q3 sales Fri. PMI UK: Services PMI US: ADP employment report EZ: Q2 GDP (Final) GE: Factory orders US: Consumer credit. company reports.Barclays Capital | European Credit Alpha REPORTING CALENDAR Next Week Date Mon. 7 Oct M&S Q2 sales Fri. U. CPI US: MBA Mortgage applications. IP US: Non-farm payrolls. BoE rates decision. Trade balance. 8 Oct Source: Bloomberg.
the 3m LTRO on Wednesday and the subsequent fine tuning operation saw much lower demand than the market had expected signalling an improved liquidity position for European banks.Barclays Capital | European Credit Alpha STRATEGIC MARKET OVERVIEW There and back again Arup Ghosh +44 (0) 20 7773 6275 firstname.lastname@example.org Aziz Sunderji +44 (0) 20 7773 7881 aziz.ghosh@barcap. and we highlight an attractive credit-equity normalisation trade on EDP. with the basis turning more positive for investment grade names.com Zoso Davies +44 (0) 20 7773 5815 zoso.winnicki@barcap. a fact that should provide spreads with a buffer if future growth remains anaemic.com Driven by mixed signals from the economic and political front credit spreads see-sawed this week before finally ending up where they started. Sovereign volatility continues to drive dislocations for corporate names. A mixture of news.sunderji@barcap. At the same time concerns remain around the banking sector in Ireland and fiscal conditions in Portugal.davies@barcap. the iTraxx main index ended the week back where it started it at 110bp. which have led to their sovereign CDS spreads widening over the past month as other peripheral spreads tightened (Figure 2). Barclays Capital 1 October 2010 4 . Having widened by 7bp on Tuesday. We also revisit our trade idea from last week to generate counter-cyclical alpha. Week in review Credit continued to trade rangebound this week. both good and bad from either side of the Atlantic has led to a lack of conviction and light trading volumes. We recommend going long a basket of selected names with counter-cyclical performance while simultaneously shorting the index as a suitable trade idea for investors worried about poor economic growth. The general macroeconomic picture seems to be improving. This is not reflected in current valuations. While risk aversion remains strong we believe it is driven more by macroeconomic uncertainties. as corporate fundamentals are the strongest they have been for a long time. where the CDS has been widening in tandem with its sovereign even though the stock has barely moved. Stronger peripheral sovereigns like Spain and Italy also saw good demand for their bonds in auctions. There has been a sharp divergence in credit views across Europe in the past few days. Figure 1: Peripheral European sovereigns have seen diverging performances over the last month… 150 100 50 0 -50 -100 -150 -200 Portugal Ireland SovX Spain Italy Greece While the aggregate sovereign index has stayed virtually unchanged. Barclays Capital The Irish finance minstry's plan for further capital injection in Anglo Irish bank was greeted by the market with guarded optimisim 6 23-Sep-10 8 10 Net 1 month spread change (bps) Source: Bloomberg. The upshot has been cash outperformance relative to CDS.com Matthew Leeming +44 (0) 20 7773 9320 matthew.com Dominik Winnicki +44 (0) 20 3134 9716 dominik. European peripherals have seen a sharp divergence in performance Figure 2: … while the sharpest changes recently have been in the Irish sovereign CDS curve 560 540 520 500 480 460 440 420 400 0 2 4 30-Sep-10 Source: Bloomberg.
The GBP6. The plan reaffirms the government’s intention to make senior bondholders whole on their investment. significantly behind the USD92bn of dollardenominated unsecured debt priced in September. We based our universe on a subset of the names included in the Barclays Capital European Aggregate Industrials Index. Telefonica and RCI Banque pulled proposed deals after citing difficulties in pricing and reduced interest given the challenging market conditions.3bn is for Anglo Irish bank. Of this €4. This seems to suggest that with this fresh capital injection Ireland might be able to finally draw a line under the banking crisis that has been threatening to plunge the country into a double-dip recession. and take into account the changing cohort over time.25bn of investment grade debt priced in September makes it the busiest month of 2010 for sterling markets. France announced its 2011 budget stating it intends to cut its public deficit by 1. Adding to the mixed economic signals in Europe is the continuing slow burn of political uncertainty across both core and peripheral countries.EUR45bn in September. though consensus on such regulations might be hard to achieve. Wednesday saw trade unions coordinate protests across a dozen European countries. In Figure 3 we plot the time series of average net debt to EBITDA for European investment grade corporates going back to Q1 02. bringing the total EUR-denominated issuance to c. bringing net capital requirements for the bank to €29.Barclays Capital | European Credit Alpha On Thursday the Irish Central Bank unveiled a fresh recapitalisation plan for the banking system. over a longer horizon we expect spreads to start reflecting the underlying fundamentals of these corporate names.EUR7bn of debt this week.3bn from previous estimates of €25bn. Whither corporate spreads? Corporate spreads in Europe are currently being driven to some extent by the market’s risk aversion due to prevailing macroeconomic uncertainty.7% of GDP. Last week’s volatility and heightened uncertainty led to a couple of casualties on the corporate issuance front. and Irish sovereign CDS curves have started steepening in the front end. The market reaction to the announcement has been moderately positive. as well as a demonstration in Brussels. While we expect this to continue over the short to medium term. Overall primary markets priced c. but seeks to impose writedowns on subordinated bond holders as had been expected. while Italy announced it should be on track with its three-year deficit reduction programme. These included a day-long general strike in Spain protesting against labour reforms and austerity measures undertaken by the current government. These costs are expected to bring Ireland’s fiscal deficit to 32% of GDP. with additional costs expected of around €10bn in a base-case scenario and €15bn in a “stress scenario”. much higher than the 3% guideline for Eurozone countries. Also on Wednesday the European Commission proposed plans to impose fines on fiscally undisciplined member states. The Irish finance minster conceded in an interview that the large size of Anglo Irish as a proportion of the country’s balance sheet means it is “systemically important” and its failure cannot be contemplated. 1 October 2010 5 .
CDS underperformance versus equity has been particularly strong in ELEPOR. to the extent that average leverage now is at one of the lowest levels since 2002. Source: Bloomberg. Driven by sovereign contagion these credits have been widening since early September. European corporates have sharply delevered since the beginning of the credit crisis. Judging by the two-month historical relationship between the CDS and the stock. While the CDS has been tracking Portugal sovereign CDS very closely on the way up in September. the stock has been trading quite firm and is now slightly above its September average (Figure 4). the very strong fundamentals should also buffer spreads from widening too much in the event growth remains anaemic for a while albeit presuming macro uncertainties do not intensify over the same period. 1 October 2010 6 . In fact.50bp tighter than the current market level. the equity-implied CDS spread is now c. Has ELEPOR gone too far? The concerns around Portugal’s fiscal conditions while driving up its sovereign spreads are also affecting ongoing deterioration in Portugal including names such as ELEPOR. however. Spreads haven’t quite moved in line with this. spreads should move tighter to reflect these improved fundamental levels. cash spreads do not seem to be reflecting this entirely yet 3 400 300 200 100 1 '02 Q1 '02 Q3 '03 Q1 '03 Q3 '04 Q1 '04 Q3 '05 Q1 '05 Q3 '06 Q1 '06 Q3 '07 Q1 '07 Q3 '08 Q1 '08 Q3 '09 Q1 '09 Q3 '10 Q1 '10 Q3 0 2 ND/EBITDA (LH axis) L-OAS (RH axis) Note: The leverage and spread values here are averages for the Barclays Capital European Aggregate Industrials Index. Barclays Capital As is evident. PORTEL and BESPL.Barclays Capital | European Credit Alpha Figure 3: While average leverage seems to be at one of its lowest levels since 2002. and we believe that as macro uncertainties fade and risk aversion retreats. but this contrasts with the relative resilience in stock prices of these companies.
In particular.55 2. One advantage to being long defensive sectors versus the index is that investors are implicitly short both financials and peripherals. Cost of borrowing EDP stock is c.35bp. Retail and Food & Beverages – the counter-cyclicality of Retail being driven by non-cyclical distributors such as Tesco.45 2. in our view. as the increased cost of funding and deteriorating sentiment start to weigh on valuation.5 2.4 2.2 01 Jul 15 Jul 29 Jul 12 Aug Equity Source: Barclays Capital 280 230 180 PROFIT 200 150 26 Aug 09 Sep 23 Sep 130 2.35 2.6 Sept ember average Figure 5: P&L of the trade for data points over the recent past CDS spread (bp) 380 330 CDS spread (bp) 350 300 LOSS Breakeven 2.65 Stock price (€) July-August Source: Bloomberg.504. Hedging smarter redux We have previously suggested that investors concerned about poor economic growth could generate counter-cyclical alpha by shorting selected names within strongly pro-cyclical sectors (see European Credit Alpha.7 2. we highlight Healthcare. is to be long counter-cyclical sectors versus the index.5 250 2. the stock should eventually catch up. CDS would have more room for positive adjustment compared to the already strong stock.6 2. but a negative beta (Figure 6). Indeed. On the other hand. which we discuss here. A number of sectors have a strong correlation to GDP growth over the economic cycle. 1 October 2010 7 . Sainsbury’s and Carrefour. The choice of the notional sizes of the trade legs was based on last three months’ relationship between the CDS spread and the stock price.Barclays Capital | European Credit Alpha Figure 4: Sovereign weakness drives EDP wide but the stock price barely budged Stock pri ce (€) 2. 24 September 2010).3 2. if the weakness in Portugal sovereign CDS continues and ELEPOR keeps trading wide. their counter-cyclical performance is clear over several cycles (Figure 7 and Figure 8). An alternative approach.4 2. Barclays Capital CDS (rhs) September Current Given the unusual strength of credit-equity dislocation and the fact that we hold a positive fundamental view on the credit.6mn worth of ELEPOR stock Note: At the time of writing EDP 5y CDS was trading at 305bp bid and EDP stock price was at €2. If the sentiment around Portugal improves. we recommend the following normalisation trade idea: Trade idea: Sell €2mn protection on ELEPOR 5y CDS Sell short €0.
00 Danone 1 October 2010 0.5% 1. and Unilever.00 0.% -5% GDP -40% 0. Roche. and that trade relatively wide versus the index (Figure 9). Barclays Capital 8 . As constituents for our basket. Source: Bloomberg.0% 2. Barclays Capital Figure 7: Retail is a strongly counter-cyclical sector… Sector performance vs Index 25% 20% 15% 10% 5% 0% -5% -10% -15% Sep 06 Mar 07 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Performance vs Index Source: Bloomberg.3 Source: Markit.3 -1.5% 4.0% 0. Barclays Capital GDP We suggest investors implement this view by selling protection on a basket of names from these sectors versus iTraxx Main – in a carry neutral format.7 0.5% GDP growth 3% 2% 1% 0% -1% -2% -3% -4. +/-2 quarters.4 0.9 Note: Regressions based on three-quarter performance of index versus SXXP against the percentage growth in GDP over the same three quarters.5% 2.Barclays Capital | European Credit Alpha Figure 6: Healthcare.8 0. Barclays Capital Figure 8: … as is Healthcare Sector performance vs Index 40% 30% 20% 10% 0% -10% -20% -30% GDP growth 4.0% 1. Tesco. 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 0.6 yoy GDP growth.50 0.75 0.0% 3. Figure 9: The names we select are relatively far off their historical tights versus the index Ratio of CDS spread to iTraxx Main 1. Sodexo.5% 3.25 0. The period used are recessions as defined by the NBER. In particular we highlight Danone. Retail.5 Figure 10: This basket has outperformed during previous periods of poor growth Spread ratio of basket to 0.0% Jun 99 Dec 99 Jun 00 Dec 00 Jun 01 Dec 01 Jun 02 Performance vs Index Source: Bloomberg. and Food & Beverages outperform the index in a downturn Rsq of sector performance versus index to GDP during downturn Bond sector STOXX Index 2007-09 2001 1991 Average RSQ Average Beta Healthcare Retail Food & Beverage SXDP SXRP SX3P 52% 32% 45% 27% 68% 25% 71% 25% 50% 50% 32% -6.5 -6. Barclays Capital Roche Sodexo Tesco Unilever Basket Source: Markit. we prefer names our analysts hold a neutral or sell-protection view on.
the institutions that hold them may have to crystallise losses. with many 2006-07 vintage LBOs also having fewer covenants to breach. We believe some defaults and restructurings that should have happened could yet still occur. So far. By contrast. High-yield and leveraged loans There is a potential catalyst for growth in the distressed debt market as borrowers begin to hit maturity/amortisation points. If investors want to enter a special situation. The 2004-07 boom in lending showed falling underwriting standards. banking syndicates may prefer to restructure credits for a higher recovery now rather than risk a lower one in the future. we expect these factors to change and the market to grow. they have to sign a confidentiality agreement to access private information and then learn about the situation before being able to build a position. This has reduced potential defaults. it remains to be seen if such measures continue. For example. European bankruptcy rules may change. which we would expect to increase the chance of future restructurings. European distressed debt is much more of a private market compared with the US. So far. Over time. Banking syndicates have also been generous in forbearance measures (covenant amendments and waivers). 1 October 2010 9 .regis@barcap. Sourcing distressed debt We see the shakeout of the European leveraged finance market and forced sale of banking assets as the key contributors to the growth in distressed debt.Barclays Capital | European Credit Alpha DISTRESSED DEBT MARKETS Time to grow Eugene Regis +44 (0) 20 7773 9169 eugene.com We expect the European distressed debt market to grow as the result of excessive corporate leverage from the past decade. RBS benefitting from the APS scheme and Spanish Cajas benefitting from the FROB recapitalisation scheme) to be run off gradually. While defaults have increased into 2009. the distressed asset class has been slow to evolve despite the economic downturn for several reasons: Some countries have created government sponsored frameworks to handle distressed assets in banks. we would argue that decisions taken by banks and investors suppressed the default rate. A functioning distressed market is needed to value securities potentially seen as stressed and restructure stressed corporates. This reduces potential recovery rates. European bankruptcy regimes tend to encourage liquidation of corporate rather than restructuring. For more distressed assets to be released to investors. taxpayers may be reluctant to underwrite bad banks at a time of fiscal austerity. the US market is more public with investors being able to obtain public information more easily and start building a position ahead of any restructuring. but if growth remains slow and corporates do not delever further. NAMA in Ireland) or to keep them on balance sheet (eg. This has allowed banks to either hive off bad loans into a government guaranteed “bad bank” (eg. but this should be balanced against regulatory capital being freed up as well as the prospect of achieving a higher price now and not being part of a restructuring process. the actual outflow of distressed assets from banks and non-bank investors has been relatively muted compared with the size of lending markets.
000 4. percentage of HY issuance 35% 30% 25% 20% 3. including private loan structures refinancing in the public bond markets.7bn of CCC product issued out of a €37bn total. While refinancing conditions were easy (eg. Barclays Capital Source: S&P LCD. the unwinds of TRS structures.4bn in an €18. with an increasing proportion of deals being struck at leverage above 5x from 2001 to 2007.000 5. Figure 14 shows the change in maturity profiles. Furthermore. market value CLOs and subsequent lack of new CLO issuance created difficulties for some borrowers.000 1. €mn (RHS) 6.000 2.000 15% 10% 5% 0% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Source: Barclays Capital 3.70% of 2010 high yield bond issuance is for refinancing purposes.0-5. Prior issuance resulted in the maturity profile seen in Figure 13.000 0 Figure 11 shows covenant deterioration amongst leveraged loan borrowers. 2005-06 vintage loan deals being refinancing in 2006-07).9x 6x and above CCC% CCC Issuance. For 2006. Loans HY Bonds 14 15 16 17 18 19 20 >20 10 11 12 13 14 15 16 17 >17 Source: S&P LCD.Barclays Capital | European Credit Alpha Figure 11: Distribution of deals by debt/EBITDA levels <3x 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 97 98 99 00 01 02 03 04 05 06 07 08 091H10 Source: S&P LCD Figure 12: CCC volumes.0-3. the highest quality borrowers were able to refinance in the bond markets or even pursue IPOs. The extension in the loan space has been small relative to Figure 13: Leveraged loan/high yield bond maturities (€bn) Figure 14: Change in maturity profiles December 2008 to August 2010 (€bn) 14 12 10 8 6 4 2 0 -2 -4 -6 Loans Bonds 50 45 40 35 30 25 20 15 10 5 0 10 11 12 13 Institutional Lev. The falling proportion in 2006-07 should be taken in the context of record years for issuance 1 .9x 4. for loans.1bn total for the year. there was €5. c.0-4.9x 5. for high yield bonds. Barclays Capital 1 CCC issuance in 2005 was €5. 1 October 2010 10 . this maturity mountain was easy to manage. So far. However. CCC issuance also grew (Figure 12) as a proportion of the total. Similarly. The shutdown in the primary markets of 2008 halted this.
leads to higher default count Many restructurings to avoid a bankruptcy filing or avoid eventual liquidation. are now higher in Europe than the US (Figure 16). This has led to a situation in which the volumes of amendments. Some credits have bought time due to forbearance measures granted by lending syndicates (Figure 15). US bankruptcy regimes US Bankruptcy regime Europe Single legal regime. By contrast. we would not expect banking syndicates to keep amending.18 months to agree to a restructuring after being unable to meet amortisation payments) means that some borrowers may not have enough time to survive ahead of amortisations/final maturities. Some equity/ management friendly – France. Some secured lender friendly – UK. Gala took c. Spain. The length of time it takes to enter negotiations (eg. which would lower recoveries. No restructuring on CDS in SNACs Easier to file and come through bankruptcy.Barclays Capital | European Credit Alpha bonds. though falling. 1 October 2010 11 . restructurings 60 50 40 30 20 10 0 2004 Source: S&P LCD Figure 16: Issuers seeking covenant relief amendments 70 60 50 40 30 20 10 US Europe Defaults Restructurings Amendments 2005 2006 2007 2008 2009 JanAug 10 0 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 Source: S&P LCD Forbearance measures were granted because projected recoveries on credits would have been very low during the recession. Figure 17: European vs. but it can be unfriendly to unsecured Ease of coming through bankruptcy Well rehearsed. given that banks are under pressure to hold onto more regulatory capital under Basel 3. UK – most favourable CDS trades with MMR under STEC Difficult to file and come through so constrains default rate count 2 Chapter 7 in the US is rarely used s it results in a liquidation and cessation of operations. the US has chapter 11 bankruptcy laws that keep a business as a going concern and arguably make the bankruptcy process faster than Europe 2 . “Going concern” driven regime Not easy. especially for names close to maturity/amortisation payments. hence. It is the poorer quality borrowers that have yet to extend their maturity profiles in the bond or loan markets who may face problems as they begin to hit maturity/amortisation deadlines. A summary of US and European bankruptcy rules is in Figure 17. European bankruptcy regulations make the default process more complex and generally results in a liquidation. they may be more incentivised to push names into restructuring and extract a higher recovery rather than seeing them default. Figure 15: Distressed credits – defaults vs. Chapter 11 leads to reorganisation under operation as a going concern No single bankruptcy provision. If companies do not turn around after receiving covenant amendments. Liquidation is frequent Out of court restructuring CDS consequences Default count consequences Source: Barclays Capital Rare as restructuring is done through a bankruptcy court under Chapter 11. Also.
The current rate is still well below the average for 2005-07 when such deals actually priced. Anglo Irish) The bank thinks the ultimate recovery could be lower than the current value. leveraged loan issuance €bn 200 180 160 140 120 100 80 60 40 20 0 2006 0 2007 2008 2009 2010 2 1 5 4 3 Non-Institutional Euribor (RHS) Euribor Average by Year (RHS) Institutional ECB Repo (RHS) % 6 Source: Bloomberg.Barclays Capital | European Credit Alpha We also see increased Euribor rates as potentially prompting more restructurings. Most loan debt is held on the banking book and generally marked at par. however. Not all banks will want to sell given the capital hit they may have to take. we believe some companies that are still underperforming by then may not be able to refinance if Euribor increases. such as commercial property. Figure 18: European rate history vs. Despite this. 1 October 2010 12 . A recent example was Technicolor. The bigger opportunity will be non-levered assets sitting on bank books from sectors affected in the recession. Capital will come from a combination of new capital. importantly. Given that our rate strategists expect Euribor to increase to 2. given that they are floating rate assets. shedding assets. a senior loan is seen as intrinsically worth €70 and is still paying its coupon. which we discuss in the appendix.05% by Q4 11 and growth to be slow. By restructuring credits rather than liquidating them. Barclays Capital However. there are certain circumstances that could force a bank to sell: A bank itself becoming distressed (eg. We note. distressed investors can extract value from stressed assets that previous classes of disparate holders could not. the leveraged finance market – at about €500bn outstanding – is only a part of the future distressed debt market. that the 8-year implementation plan should mean fewer immediate forced sales of assets. If. for example. Distressed loans at European banks We see potentially increased amounts of distressed debt coming from the banks over the medium term. increased deposits and. thereby enabling more of them to be held to expected maturity if projected recovery prospects improve. The holders of such assets do not necessarily have the expertise to restructure them. The end result of Basel 3 is that bank assets will have to be better maturity matched with longer-term liabilities. reducing the need to fund them. The low rate of Euribor has helped keep some credits alive. a bank will not force a €30 loss by pushing for a restructuring – they would give a credit time to get a higher recovery or par.
For example.€500bn of this is from peripherals including Greece and Spain. facing such rules as limits on CCC-rated positions and upcoming reinvestment period deadlines. For example. The size of the distressed market depends on the willingness of current asset holders to continue to crystalise losses now or later. Italy and Spain have €2.Barclays Capital | European Credit Alpha The reorganisation of the European banking sector is already resulting in asset sales for some banks across the EU. due to banks needing to delever and shed some assets ahead of Basel 3 implementation and bad banks potentially unwinding holdings of distressed loans. Existing CLOs will be hampered from investing in distressed. In the recent announcement. Conclusion A true market in European distressed securities will develop over time. existing CLOs will have a lot less flexibility as they are forced to pay down their liabilities from loan amortisations and recoveries. Such deteriorating asset quality could either lead to assets being forced out of banks without going to NAMA or to NAMA not being able to fund more impaired assets. The cost of bailing out the Irish banking system to the government has risen combined with continuing austerity measures. Conditional upon receiving EC approval of state aid. the haircuts offered by NAMA over the first two tranches have increased from 55% to c. in our opinion. Ireland. According to current plans. with c. Banks are trying varied solutions to dispose of distressed assets outside of traditional distressed debt investors. The larger proportion of distressed debt will be par bank loans. in the case of Anglo Irish Bank.7%. some banks are shrinking via asset sales over specified time frames. a level not seen since 1997. The government created the National Asset Management Agency (NAMA) to buy bank assets at a discount in exchange for government guaranteed bonds (which are eligible ECB collateral). The current yield on the Irish 10-year benchmark has risen to c. the haircut increased again to 67%. we expect German landesbanks to be broadly net sellers of assets because they used their guaranteed balance sheets to build up assets in the past decade – some of which ended up as distressed. The bad banks created to buy banking assets at a discount need capital. 1 October 2010 13 . France. A recent result of this is more active distressed trading in Irish credits such as Quinn Group. Once past reinvestment periods. NAMA is expected to buy €81bn in impaired Irish bank assets.62%. a recent CLO from ICG saw €1. The evolving textbook example is in Ireland following the end of the Celtic Tiger growth period. yet there is already evidence of continued deteriorating asset quality in the banking system since the bailout began. For example. We expect some poorly performing companies to be unable to refinance maturities and lending groups to be less willing to use forbearance measures. Germany. NAMA can manage the assets to maturity or gradually sell them down to thirdparty investors.5trn in maturities to fund through to 2015.6. Assets from “bad banks” The bailout of the banking system with public money could come under pressure. Public finances across most EU nations have come under pressure. The ability of countries to bail out their banking systems will link the creditworthiness of the banks to that of sovereigns. For example.4bn of loans of varying credit quality exit the books of RBS with the equity tranche taking up 41% of the total deal.
Barclays Capital | European Credit Alpha Appendix: Thomson/Technicolor case study The Technicolor restructuring is an interesting case study in how distressed credits can restructure after insolvency. Debt and equity/ORA/Disposal notes valued at the same share as this class of debt in the old company. The restructuring saw debt and hybrid holders lose principal. agreed to a restructuring proposal with its creditors. TL E+500bp. Following this. A debt for equity swap.€0. with debt holders also getting extended and equity holders accepting dilution. In July 2009. Issued to creditors to be repaid from disposal proceeds and in shares of Thomson (300) options at prevailing market price.55% $/£/€ amortising (new PPN) Sr notes 9%/9. Barclays Capital 1 October 2010 14 . 1550 ORA (D/E swap) 2010/11 10% PIK Disposal note (10% PIK Dec 2010) Reinstated debt 2015 Note: * Restructuring plan used March 2009 FX rates.3bn in debt. Issued to credits as debt for equity swap maturing in December 2010 and December 2011 with holders option to extend by one (639) year. which differ from balance sheet numbers.05 2828 € Cash PF net debt Rights issue (D/E swap) Equity price was €0.35%/9.66 a share and fully underwritten by creditors via debt sell-off. Figure 19: Technicolor (old Thomson) restructuring Pre restructuring €mn Reinstated debt post restructuring €mn Syndicated facility 1739 Holders of the old syndicated facility received new loans and received equity/ORA Instruments/DPN rights. the company. which had been seen as in distress for some time. Debt and equity/ORA/Disposal notes valued at the same share as this class of debt in the old company. hybrid equity and equity. the subsequent issue of an ORA instrument that payable as equity in December 2010 and 2011 and the pledging of disposal proceeds as a disposal note wiped out c. Source: Company filings. The pre and post restructuring capital structure is displayed in Figure 19. Holders of the old PPNs received new PPN 1100 notes and equity/ORA Instruments/DPN rights. the new debt saw extended terms through to 2015-16 and the hybrid was stripped of its coupons after a payment of c.35%/9. Company can repay 23% in cash.55% $/£/€ bullet (new PPN) 643 194 Old private placement notes (PPN) 407 1550 (400) 1150 Total debt* Cash Hybrid Net debt Post restructuring Equity New term loans and senior notes are senior 2839 unsecured and pari passu Total reinstated debt (511) 500 Hybrid bought out at €0. 7% amortising 306 TL E+600bp 2016 bullet Sr notes 9%/9.05 to note holders (the hybrid is redeemed in full on any liquidation of the company and the payment avoided nuisance lawsuits).€1. It involved multiple classes of debt. (350) open to shareholders. Technicolour also pledged disposal proceeds from various asset sales that were repayable in equity/cash.
Though interest cover has fallen to 3. the restructuring has resulted in a more sustainable capital structure.Barclays Capital | European Credit Alpha Debt recovery in this case (at time of restructuring) was c. reducing net debt to EBITDA to 2. this reflects the current higher cost of capital traded off for a longer life of debt.8x from 6. ORA and rights to disposal proceeds under the disposal note. Rather than push through a liquidation that may have destroyed value. down from 4x at end-2008. However. also giving it extra ability to refinance further on if the credit story continues to improve.55% for both the RCF and PPN holders (they were pari) before factoring in equity received under the debt for equity swap.4x. 1 October 2010 15 .3x over the same period. the original equity holders have been heavily diluted by the debt holders who received equity. The ultimate recovery for debtholders is also dependent on future equity and debt price direction in the restructured entity.
4 2.2 42.9 0.35 0. Index curves steepened. Insurance.27 0. but average by historical measures – and significantly below the USD100bn of new deals in the US market.5 1.5 2.5 5.5 2.4 2.02 0. while sterling cash underperformed and now looks cheap to USD-credit on a historical basis.4 3.5 2.5 1.9 2. our measure of the cash-CDS basis was broadly unchanged as single-name contracts lagged the index tightening.Barclays Capital | European Credit Alpha CREDIT AT A GLANCE Zoso Davies +44 (0) 20 7773 5815 zoso.14 1.EUR30bn of debt and non-financials c. Despite this.8 2.72 0.0 2.09 0.5 0.4 1. Indices were marginally tighter week on week. was the top performing sector this month – utilities underperformed.8 3.2 3.com Dominik Winnicki +44 (0) 20 3134 9716 dominik.5 -0.3 2.7 0.6 1.EUR5bn was hybrid debt.3 3.7 3.7 10.2 1.6 1.7 0.9 5.7 1. of which c.EUR20bn.3 1.19 0.30 0.88 0.49 0.0 1.9 51.0 4. Figure 20: Barclays Capital Euro Aggregate Corporate Index performance by sector Sector MTD excess returns (%) 29 Sept OAS(bp) 21 Aug OAS(bp) m/m spread change Excess return Excess return 3mth (%) 12mth (%) % of index Insurance Brokerage Banking Senior Lower Tier 2 Upper Tier 2 Tier 1 2.4 1. September issuance was the third highest monthly total this year.hagemans@barcap. led by financials – in particular the Tier 1 part of the capital structure.2 1. but only marginally.35 0.0 Transportation Capital Goods Basic Industry REITS Finance Companies Other Finance Technology Consumer Cyclical Natural Gas Consumer Non-Cyclical Other Utility Energy Communications Electric Utility Financials Corporates Source: Barclays Capital 1 October 2010 16 .08 0.77 0.16 0.6 6.82 0.51 0.00 -0. and slopes remain near the top of their historical email@example.com 0.34 0.9 1.8 12.4 firstname.lastname@example.org Corporates generated just over 50bp of excess returns in September.com Rob Hagemans +44 (0) 20 7773 6509 rob.5 0.0 1.6 4.3 1. Financials issued c.1 0.7 5.9 2.2 1.2 3.2 0.2 0. while investment grade cash was wider.0 1. High-yield cash continues to outperform.0 0.4 5.52 331 266 231 173 292 441 603 203 173 152 172 203 265 148 143 148 112 134 104 161 140 240 193 367 280 244 172 324 447 705 214 179 158 177 206 279 149 140 143 110 122 101 158 126 254 199 -36 -13 -13 1 -32 -6 -102 -11 -6 -6 -5 -3 -14 0 3 5 2 12 3 3 14 -14 -6 4.9 0.01 -0.13 0.9 0.2 1.8 3.1 0.7 2.2 8.4 100.7 1.98 5.77 0. This drove the skew more negative on Main and Crossover.9 8.5 2. which is more heavily weighted towards Tier 1 than banking.1 30.0 9.
IG spreads widened while HY tightened w/w spread change. L-OAS 700 600 500 400 300 200 100 0 2007 EUR (155) GBP (199) USD (172) 2008 2009 2010 Source: Barclays Capital 17 . OAS (bp) 400 350 300 250 200 150 100 50 Sub. Sen. bp 30 25 20 15 10 5 0 -5 -10 -15 -20 Sen. HY. Financials (173) Non-Fins (144) Sub. historically BBB non-financials. bp 14 Note: Spread changes measured between Wednesdays.Barclays Capital | European Credit Alpha Figure 21: CDS indices tightened this week… w/w spread change (bp) 2 1 0 -1 -2 -3 -4 -5 -6 Main HiVol Crossover Sen. Source: Markit Figure 23: In cash. SovX. Fins (144) HiVol (175) Crossover (513) 2008 2009 2010 Note: Spread changes measured between Wednesdays. Fins Sub.Fin. Fins. Source: Barclays Capital Figure 25: USD cash outperformed this week w/w spread change. Source: Barclays Capital LT2 Tier 1 Financials Industrials Utilities Pan Eur HY Index HY 3% ex. Fins 12 10 8 6 4 2 0 EUR GBP USD 1 October 2010 Figure 24: HY spreads have outperformed year to date IG. HiVol (bp) 600 Main (111) 500 400 300 200 100 0 2007 Source: Markit Crossover (bp) 1200 1000 800 600 400 200 0 2011 SovX (156) Sen. OAS (bp) 1800 1600 1400 1200 1000 800 600 400 200 0 0 2007 2008 2009 2010 2011 Sen. Fins SovX Figure 22: … but spreads remain in a narrow range Main. Financials (377) Pan Eur HY Index (525) Source: Barclays Capital Note: Spread changes measured between Wednesdays. Fins Figure 26: Sterling credit looks cheap to USD.
bp 100 50 0 -50 -100 -150 -200 Aug 09 48 9 4 -16 -27 Nov 09 Feb 10 May 10 Aug 10 High Yield € IG non-fins £ IG non-fins Source: Markit. Barclays Capital 1 October 2010 Aug Apr Oct Jul . Issuance MTD Dec May Nov Jan Sep Feb Jun Mar 2009 Financials Source: Dealogic. EUR bn 120 100 80 60 40 20 0 Sep* Dec May Nov Sep July Jan Jun Mar Aug Feb Apr Oct *. Barclays Capital € IG sen-fins € IG sub-fins Source: Markit. €bn 10 8 6 4 2 0 Sep* 18 *. Barclays Capital 2010 Monthly Issuance Figure 31: Implied vol took another leg lower this week Figure 32: Realised volatility continues to trend lower 140% 120% 100% 80% Main (43%) HiVol (52%) Crossover (50%) SenFin (57%) SovX (52%) Annualised 110% 100% 90% 80% 70% 60% 50% 40% 30% Apr 09 Jul 09 Oct 09 Realised Jan 10 Apr 10 Jul 10 Implied 43% 66% 60% 40% 20% Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Source: Markit. Barclays Capital 2010 Non-Financials Source: Dealogic.Barclays Capital | European Credit Alpha Figure 27: Basis was broadly unchanged this week w/w change in basis. Issuance MTD Figure 30: HY issuance picked up late in the month HY Issuance. Barclays Capital Figure 29: September has been the third busiest month. bp 10 8 6 4 2 0 -2 -4 -6 -8 € IG nonfins £ IG nonfins € IG subfins € IG senfins High Yield Figure 28: The sub-fins basis continues to normalise cash-CDS Basis. Barclays Capital Source: Markit. YTD IG Issuance.
Barclays Capital Source: Markit.2 0.05 0.Barclays Capital | European Credit Alpha Figure 33: Curves steepened marginally this week w/w spread change.15 0. Agg. Corp OAS to SX5P Source: Markit.10 -0. cash index (OAS) 500 2000-2007 Cycle 2007-2009 Cycle 2009-Present Current Spread Figure 36: Cross-asset beta and correlation have stabilised 90 day Beta of w/w changes 0. Bloomberg.00 -0. bp 150 100 50 Main slope.4 -0. Corp OAS to SX5P Correlation. Barclays Capital Figure 37: Skew on Main turned negative this week… Skew (bp) 16 14 12 10 8 6 4 2 0 -2 -4 Apr 10 May 10 -3.05 -0. bp 30 20 10 0 -10 XO 3s5s (76) XO 5s10s (5) Main 3s5s (27) Main 5s10s (11) -20 -30 -40 -50 2011 2 0 -50 1 -100 -150 -200 0 Main 3s5s Main 5s10s XO 3s5s XO 5s10s -250 2006 2007 2008 2009 2010 Source: Markit. Barclays Capital Source: Markit. Agg. Barclays Capital Figure 35: Credit and equities remain range-bound Stoxx 50 5600 5100 4600 4100 3600 3100 2600 2100 1600 1100 600 0 100 200 300 400 Barclays Capital EUR Agg. Barclays Capital 25 day rolling average 1 October 2010 19 . Barclays Capital 25 day rolling average Skew of Crossover Source: Markit. BarCap Eur.6 -0. bp 3 Figure 34: Index 3s5s remain near historical highs Crossover slope.0 2004 2006 2008 2010 Beta.6 Jun 10 Jul 10 Aug 10 Sep 10 Skew of Main Source: Markit.0 -0.0 Jun 10 Jul 10 Aug 10 Sep 10 Figure 38: … but was broadly unchanged on Crossover Skew (bp) 50 40 30 20 10 0 -10 Apr 10 May 10 9.15 2002 90 day Correlation of w/w changes 0.2 -0.10 0. BarCap Eur.8 -1. Bloomberg.
Barclays Capital | European Credit Alpha Returns Figure 39: Barclays Capital Euro Aggregate Corporate Index – performance by rating and maturity MTD excess returns (%) Rating 29 Sept OAS(bp) 21 Aug OAS(bp) m/m spread change Excess return 6mth (%) Excess return 12mth (%) % of index Aaa Aa A Baa Maturity 0.3 -0.4 3.0 7.6 10.1 20.8 3.7 17.5 49. Pan European 3% High Yield Index Total return (%) Jul Overall 3.4 6.3 25.3 -0.8 24.3 31.9 3.16 0.2 3.9 4.8 5.9 2.2 3.6 5.3 5.1 3.7 3.02 0.3 4.9 11.8 32.7 4.1 23.1 5.6 11.3 96 152 281 575 238 175 146 91 66 79 91 153 115 149 145 152 130 84 142 56 -65 -93 -159 -243 -100 -86 -126 -37 -64 -125 -138 -123 -109 -92 -81 -91 -92 -64 -73 11 12 16 -198 168 -125 -37 34 -18 27 -76 -71 -112 -32 36 -140 15 -21 -8 -69 130 57.4 21.2 24.0 3.8 1.8 -1.4 3.9 OAS/ MAD 134 Δ OAS (bp) Jul -84 2010 YTD -38 % Credit index 100.5 12.8 4.7 27.9 OAS (bp) 530 MAD (yrs) 3.9 24.72 -0.6 24.7 27.4 21.7 2.9 1.1 21.7 2.3 6.1 29.6 1.5 62.9 8.7 0.2 1.6 10.4 7.0 4.3 3.8 15.46 0.3 11.49 0.6 13.7 5.8 8.9 4.8 16.3 15.4 5.6 -0.3 6.0 1.6 1.7 11.0 9.6 -0.1 4.66 0.7 2.7 18.7 0.3 20.6 -0.1 0.9 8.95 100 137 188 267 99 136 196 275 1 1 -8 -8 0.2 388 620 902 2065 439 584 639 490 463 417 472 605 458 663 543 606 513 366 482 350 4.3 19.1 14.4 3.9 1-3y 3-5y 5-7y 7-10y 10y+ Source: Barclays Capital 0.6 5.50 0.2 2010 YTD 9.3 8.3 0.8 2.0 10.8 29.0 4.3 13.9 1.6 -2.7 1.5 51.7 24.1 1.9 4.4 8.2 26.1 8.4 25.9 0.4 24.0 Ba B Caa Ca-D 0-3y 3-4y 4-5y 5-6y 6y+ Energy Electric Technology Transportation Communications Basic Industry Other Industrial Capital Goods Consumer Non-Cyclical Consumer Cyclical Other utility Source: Barclays Capital 2.4 5.2 1 October 2010 20 .5 3.7 5.4 18.8 20.1 3.9 Figure 40: 2010 July total returns.2 22.1 25.01 185 195 199 214 158 196 200 202 215 157 -12 -4 -3 -1 1 0.0 6.3 LTM 23.5 15.0 18.1 2.7 2.9 2.6 3.8 10.
15 0.9 0.05 Skew 0.9 1.5 Jan Feb Mar Main Apr May Jun Jul Aug Sep EURUSD SX5E EUSW5 Volatility (%) 80 75 70 65 60 55 50 30/08/2010 IG 3M ATM (rhs) Note: 3m implied volatilities normalised to 4 January level.5 1. EUSW5 represents 3m implied volatility in 5y swaptions. Barclays Capital 1 October 2010 21 .7 0.Barclays Capital | European Credit Alpha Index volatility update Figure 41: Realised volatility keeps dropping Volatility (%) 160 140 120 100 80 60 40 20 0 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 3M Implied Source: Barclays Capital Figure 42: Payer skew edged up as risk aversion increased Volatility 120% 100% 80% 60% 40% 20% 0% Sep 09 Nov 09 Jan 10 Mar 10 May 10 Jul 10 0.1 3M Realised 1M Realised 3M ATMf implied vol Payer skew (rhs) Source: Barclays Capital Receiver skew (rhs) Figure 43: Main volatility still in a downward trend Volatility (%) 90 85 80 75 70 65 60 55 50 30/06/2010 30/07/2010 Main 3M ATM Source: Barclays Capital Figure 44: Credit volatility falling versus other asset classes Normalized volatility 1.7 1.2 0. Source: Bloomberg.05 0 -0.1 0.3 1.
com Neil Beddall Utilities +44 (0)20 7773 9879 neil.morton@barcap. European Fundamental Credit Research +44 (0)20 7773 9857 robert.com Zoso Davies Credit Strategy +44 (0)20 7773 5815 zoso.com Justin Ong Consumer/Retail +44 (0)20 3134 9687 justin.com Robert Jones Head.com Arup Ghosh Credit Strategy +44 (0)20 7773 6275 email@example.com@firstname.lastname@example.org Aziz Sunderji Credit Strategy +44 (0) 20 7773 7881 email@example.com@firstname.lastname@example.org@barcap.com Daniel Rekrut High Yield TMT +44 (0)20 7773 5980 daniel.com 1 October 2010 22 .Barclays Capital | European Credit Alpha EUROPEAN CREDIT RESEARCH ANALYSTS Matthew Leeming Credit Strategy +44 (0)20 7773 9320 matthew.com Sam Morton High Grade TMT +44 (0)20 7773 7844 email@example.com@ firstname.lastname@example.org@barcap.com Eugene Regis Credit Strategy +44 (0)20 7773 9169 eugene.com Darren Hook Industrials +44 (0)20 7773 8970 darren.com Dominik Winnicki Credit Strategy +44 (0)20 3134 9716 email@example.com@firstname.lastname@example.org Rob Hagemans Credit Strategy +44 (0)20 7773 6509 rob.com Brian Monteleone Insurance +44 (0)20 3134 9685 brian.com Jeroen Julius Banks +44 (0)20 3134 9642 jeroen.
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