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Lufthansa (LHAGR; Baa3, BBB-, BBB-; S) sell-off

TRANSPORTATION
  • Worst consumer among Main CDS's is Lufty that's moved +5 to 130bps. It's +20 over the week.
  • 5Y basis is +11 - that is well off the Main avg. that's low double digit negative. We think cash is to blame, particularly the new 30s that look bid well in. 1k denomination might be helping it. It's not far off EasyJet curve (1-notch higher, net cash BS).
  • We don't see value in any of the network carriers but those that do want exposure and are uneasy in HY (cheap view on Finnair29s) should think about rotating into IAG's curve that still gives 26bps despite equal ratings.
  • Reminder IAG was recently given surprise 2-notch upgrade into IG and is pre-dominantly a UK name (British Airways 47% of operating income) with side exposure to Spanish Iberia (27%) and LCC carrier Vueling (11%).

Cash moves; LHAGR +7-18 (new 30s +7), IAGLN +6-14.
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