American credit market outlook

Recent succession events in credit default swaps, where some of the contracts migrate to new entities, have raised some fears about how many more contracts are susceptible.
This has prompted analysts at Barclays Capital to try to identify companies that may be liable to spin off entities, and evaluate whether such an event would likely lead to a succession in the companies' swaps.
The so-called succession risk of the CDS contracts has emerged as a large issue because it can result in significant losses for protection buyers or sellers, depending on the credit profile of the new entity.
"In the first half of the year, there was a lot of discussion around succession events, but it was more about a lack of succession events transpiring," said Matthew Mish, credit derivatives strategist at Barclays in New York.
"Now we have had one realised (Alltel) and one probable (Verizon) situation, and debt-for-debt exchange structures are driving both of them," Mish said.
When more than 25 percent of the debt that is deliverable into credit derivative contracts is transferred to a new entity, credit default swaps are equally split between the two companies.
Alltel Corp's swaps split between the company and Windstream Corp, its former wireline business that was merged with Valor Communications Group Inc when it was spun off last month.
Swaps on Verizon Communications Inc have widened since the company said it planned a tax-free spin-off of its phone directories business, raising concerns the contracts would be split between the two entities.
"There has been some question over whether or not these transactions are one-off situations, or whether it's the beginning of something more significant in terms of the movement of succession-related events," Mish said.
"We attempted to analyse the risk of further events involving potential spin-offs across multiple sectors and names," he said.
The Wall Street Journal reported on Friday that management at the company and the Chandler family, Tribune' biggest shareholder, have resumed discussions on an informal basis to try to resolve their differences about the future of the newspaper and broadcasting concern.