Fitch Solutions: CDS Spreads Becoming More Integral to Corporate Treasuries

Mon Jul 1, 2013 10:00am EDT

(The following statement was released by the rating agency) Link to Fitch Solutions' Report: Credit Risk Indicators for Corporate Treasury here NEW YORK, July 01 (Fitch) Credit default swap (CDS) spreads and other short-term market-based indicators have become more valuable market gauges for corporate treasuries, who have seen a notable change in their own responsibilities post-crisis, according to Fitch Solutions in a new report. While credit ratings and fundamental financial data are integral in gauging the long-term outlook of a company's health, the real-time movement of CDS spreads can and have served as a valuable early warning signal for corporate treasurers. 'Sudden changes in CDS movement would enable corporate treasuries to quickly identify and mitigate changes in their company's credit risk exposure to bank counterparts, suppliers and customers,' said Director Diana Allmendinger. Proof of this lies with two companies that have made headlines of late: Dell Inc. and JC Penney. After out-performing their peers during the first half of 2012, Dell's CDS spreads began to widen considerably in the middle of last year, with spreads coming out more drastically upon news of a potential leveraged buyout. A similar trajectory was evident with JC Penney last year. The Fitch Solutions report discusses both of these case studies in greater detail. Looking at the bigger picture, 'CDS movement in recent months appears to indicate that corporate and financial credit risk is realigning,' said Allmendinger. Fitch Solutions' CDS Indices of North American financials and nonfinancial corporates are pricing within 10% of each other since mid-February and within 2% as of May 1. This is in stark contrast to just after the financial markets unraveled late in 2007, when CDS spreads on nonfinancial corporate institutions in North America were pricing nearly three times wider than swaps referencing financial firms. 'Credit Risk Indicators for Corporate Treasury' is available at 'www.fitchsolutions.com' or by clicking on the above link. Contact: Diana Allmendinger Director +1-212-908-0848 Fitch Solutions, 33 Whitehall Street, New York, NY 10004 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Fitch Solutions, a division of the Fitch Group, focuses on the development of fixed-income products and services, bringing to market a wide range of data, analytical tools and related services. The division is also the distribution channel for Fitch Ratings content. Fitch Ratings and Fitch Solutions are part of the Fitch Group, a jointly-owned subsidiary of Fimalac, S.A. and Hearst Corporation. For additional information, please visit 'www.fitchsolutions.com'; 'www.fitchratings.com'; 'www.fimalac.com' and 'www.hearst.com'.