NEW YORK, July 26 (IFR) - DuPont CDS spreads pushed out
wider again Friday to 55bp, deteriorating to their worst levels
in 12 months as the US corporate giant faces questions about the
future of its performance chemicals unit as well as possible
interest from activist shareholder Nelson Peltz.
The company's 5-year credit default swaps (CDS) eroded 41%
in one day last week after a report that Peltz's Trian Fund
Management had an eye on DuPont, and have slipped another
34% since this week's announcement that it is considering a
spin-off or sale of the performance chemicals business.
In this case, however, the steep CDS decline appears to be
connected to those two events, and not to market fears about a
debt default or the company's overall creditworthiness.
DTCC data show DuPont's net notional amount of outstanding
CDS - essentially protection bought by investors against a
possible default - last Friday hit its lowest level in 12
"We expect DuPont's financial policies following any
transaction [for the performance unit] to remain unchanged, and
its credit metrics to be commensurate with the current ratings,"
said S&P, which left the company's A rating unchanged following
In the four weeks before the latest developments, DuPont
5-year CDS averaged around 33bp - and the sharp widening looks
to be overdone. The company's cash instruments have been
resilient, with short- to intermediate-dated bonds trading
steadily above par. Like much longer duration debt at the
moment, DuPont's longer dated bonds have declined modestly.
"While it is difficult to predict the potential outcome and
spreads may remain elevated until there is more certainty,
chemicals analyst Brian Lalli remains constructive on DuPont,
given that the company has publicly committed to its A ratings,"
Barclays said in a note this week.
It is too early to predict the impact of any change in
strategic focus to CDS, and there has been no regulatory filing
from Peltz's hedge fund regarding its potential position in
DuPont. In the meantime, the company's CDS spreads likely will
continue to push wider until there is some further clarity.