Last week's news regarding the inability of Centro to hedge I.R.Risk hardly suprising - my guess is that their core bankers have withdrawn long-term swap lines (although it makes you wonder why they didn't negotiate a netting arrangement, particularly given that existing cover is in the money - go figure!).
What this does show is that the bankers are getting nervous - to withdraw swap/IR lines (where the credit risk is significantly less than, say, direct debt or securities) is more a show of "no confidence" that a show of concern. The refinancing scheduled to take place soon will need to be short-term (given the spreads) and the liquidity ratios will ultimately be affected; leading to possible further downgrades or, at the very least, an experssion of concern from S&P and Fitch.
For my money, Centro not a buy at current levels - but will consider it much lower down. I think the talk of "recovery rates" will soon enter the market, and when this does occur we'll start seeing more talk of securitisation "differentials" (defining the fixed charges on security tranches): this will certainly make holders of non-asset backed notes worry.
Best of luck to all holders: playing this from a rolling short position atm.
Regards Kit
CNP Price at posting:
0.0¢ Sentiment: Sell Disclosure: Not Held
