NEW YORK--(BUSINESS WIRE)--Yum! Brands Inc.'s (YUM) announced separation of its China operation into an independent publicly traded company has sent its credit default swap (CDS) spreads spiking to their widest levels ever, according to Fitch Solutions in its latest CDS Case Study Snapshot.
Five-year CDS on Yum! have continued to gap out, 98% wider in just the past week, to price at all-time wide levels. Additionally, CDS are currently pricing deep in speculative grade territory, a stark contrast from the beginning of this year.
"Spread widening for Yum! is being driven by the company's shift to a more aggressive financial strategy and investors' expectation that the company will lever up the company to return cash to shareholders," said Diana Allmendinger. "The spinoff means its leverage is likely to rise substantially." In fact, yesterday's spinoff announcement sent CDS spreads another 45% wider.
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.
Fitch Group is a global leader in financial information services with operations in more than 30 countries. Fitch Group is comprised of: Fitch Ratings, a global leader in credit ratings and research; Fitch Solutions, a leading provider of credit market data, analytical tools and risk services; BMI Research, an independent provider of country risk and industry analysis specializing in emerging and frontier markets; and Fitch Learning, a preeminent training and professional development firm. With dual headquarters in London and New York, Fitch Group is majority owned by Hearst.