NEW YORK--(BUSINESS WIRE)--Souring market sentiment on Yum Brands of late has sent credit default sap (CDS) spreads to their widest level since 2009, according to Fitch Solutions in its latest CDS Case Study Snapshot.
Five-year CDS on Yum Brands Inc. have widened out 20% over the past month to price at the widest levels observed since 2009. The CDS Implied Rating for Yum has been dropping steadily over the past year, from 'A' to 'BBB' (based on CDS trading patterns) while current CDS spreads are indicating 'BBB-' levels.
'Spread widening for Yum Brands is likely emanating from disappointing third quarter earnings and risks to the company's growth given significant exposure to China, which is experiencing an economic slowdown,' said Director Diana Allmendinger. 'There are also increased concerns among bondholders that YUM's financial strategy may become more aggressive, which may also weigh on CDS spreads.'
China same-store sales turned positive (+2%) for the first time since June 2014 during the latest quarter, though the sales recovery is slower than management anticipated. Moreover, YUM lowered EPS growth guidance to well below its target of at least 10% annually and increased its dividend 12% while share repurchases have continued.
Fitch Solutions case studies build on data from its CDS Pricing Service and proprietary quantitative models, including CDS Implied Ratings. These credit risk indicators are designed to provide real-time, market-based views of creditworthiness. As such, they can and often do reflect more short term market views on factors such as currencies, seasonal market effects and short-term technical influences. This is in contrast to Fitch Ratings' Issuer Default Ratings (IDRs), which are based on forward-looking fundamental credit analysis over an extended period of time.
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