May 15, 2024 10:40 GMT
Tesco (TSCOLN; Baa3, BBB-, BBB-; S) IPT
CONSUMER STAPLES
IPT: UKT Jan 34s +145 (5.57% or Z+175) vs. FV of UKT+115 (5.27% or Z+145)
***FV assumes 35s liquid. We think secondary is well wide and see both 35s and new issues as screening cheap.
- Firstly, docs have left unch the wording around Event of default including material subsidiary definition of profits before tax or net assets >10%. This builds our confidence on the initial take (linked below) that Tesco bank sale does not meet thresholds.
- For those wondering why this is relevant, colour we have is investors pricing in a par call may have contributed to some dislocated moves (see €29/31s spread - the 29s low cash px, 31s high). We do not consider a par call at all likely for now.
- FV is Z+145 & is dragged up by the 0.8y longer 35s trading at Z+160. Both FV and 35s look well wide with former being spread +40 above McDoanld's (Baa1/BBB+). In € 29s are flat to MCD, 31s spread +25 - again we think above par-call plays skewing these spreads and FV spread to MCD somewhere in high single digits.
- Cross check for Tesco wideness is 5s10s curve spread (30/35s) pricing steeper than a Tobacco name, BAT.
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