Fitch Solutions: CDS Spreads Becoming More Integral to Corporate Treasuries
NEW YORK -- July 1, 2013
Link to Fitch Solutions' Report: Credit Risk Indicators for Corporate Treasury
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
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
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.
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'.
Fitch Solutions, 33 Whitehall Street, New York, NY 10004
Sandro Scenga, +1-212-908-0278 (New York)
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