ITV revives Carlton for bond, creates CDS havoc

By Jane Baird

LONDON, July 3 (Reuters) - Carlton came back to life as a debtor this week, after not existing as a listed company for years, to provide successor ITV Plc (ITV.L: Quote, Profile, Research) with relatively cheap funding, causing turmoil in the credit derivatives market.

Spreads on Carlton credit default swaps soared to around 250 basis points from 50 basis points on Thursday after ITV, Britain's biggest commercial broadcaster, said late on Wednesday it would sell 110 million pounds ($218.4 million) of five-year floating-rate notes guaranteed by Carlton.

Dealers and investors who had long ago sold protection against a Carlton default in the CDS market saw the value of their legacy positions plummet after Carlton, which merged with Granada in 2004 to form ITV, suddenly had debt that could default.

But the deal led traders and analysts to question whether investors who held protection in Carlton CDS and made a killing on Thursday were also those who invested in the new bonds.

"This new issue has taken the market by surprise, and the structure of the deal raises questions over the ability of large investors to arbitrarily influence CDS spreads through seemingly technical factors," wrote BNP Paribas analyst Hunter Martin.

Charles van der Welle, ITV director of treasury, said he could not comment on who invested in the bonds, adding that the sale was a private transaction.

"The deal came about through a reverse enquiry," he said. "We were happy with the issue on the basis of the pricing and structure put before us."

Spreads of a number of other orphaned CDS also underperformed the market on Thursday due to fears that other successor companies could follow suit.