Kelda CDS narrow after transfers debt to affiliate

LONDON, July 4 (Reuters) - Credit default swaps on Kelda Group jumped tighter on Friday after the British water utility transferred its debt to affiliate Yorkshire Water Services Plc, leaving Kelda with no debt that could default.

The cost of buying five-year protection against a Kelda default narrowed by about 50 basis points to 90 basis points, a trader said.

Kelda announced late on Thursday that Yorkshire Water Services Finance would become the prinicipal debtor and that the credit ratings of the bonds were not expected to change. An official at the company refused to elaborate further.

No CDS trade currently on the Yorkshire Water name, which indicates that it could replace Kelda as the underlying name for the existing CDS, rather than leaving Kelda to continue as what the market calls an orphan name.

In February, Kelda was acquired by the Saltaire Water consortium including Citigroup Alternative Investments (C.N: Quote, Profile, Research), HSBC (HSBA.L: Quote, Profile, Research), the Singapore government's investment arm and Prudential Group's (PRU.L: Quote, Profile, Research) infrastructure fund for around 3 billion pounds and ceased to be a listed company.

Last month, Standard & Poor's kept its A- ratings on Kelda and subsidiary Yorkshire Water on credit watch negative.

S&P said at the time, citing conversations with management, that the consortium was working toward refinancing the acquisition this year through a securitisation of its cash flows and planned to migrate existing debt at Kelda and Yorkshire water to this structure.

The rating could be downgraded if the refinancing were not to occur in a timely way or if its structure did not provide sufficient protection for creditors, S&P said. (Reporting by Jane Baird; Editing by David Cowell)