LONDON (Dow Jones)--Icelandic financial group Kaupthing Bunadarbanki's (KAUP.IC) five-year credit default swaps tightened Tuesday as the bank successfully secured a new dual-tranche loan facility, increasing its original target amount from EUR250 million to EUR500 million, a credit analyst at a European bank said.
Recently, the investor market has doubted Kaupthing's ability to finance itself, resulting in the bank's credit protection costs widening. But the bank has now proved it can still raise finance, the analyst said.
Kaupthing's CDS tightened 11 basis points during early trade Tuesday, to be quoted late Tuesday at 88/93 basis points, as the bank announced its three- and five-year syndicated dual tranche term loan facility was oversubscribed. Due to demand, the bank has increased the final facility amount from EUR250 million to EUR500 million, the analyst said.
The margins on the new facility are 17.5 basis points and 23.5 basis points above Euribor for three and five years, respectively.
The levels at which Kaupthing secured its loan facility, "sounded like a good deal" said another European analyst.
The bank's CDS tightening was most likely a combination of Kaupthing's CDS returning to fairer levels after volatile trading in addition to the new loan facility, she said.
Kaupthing is an investment-grade borrower and there aren't many investment-grade borrowers with CDS levels over 100 basis points, the analyst said. Such high protection costs are usually due to the borrower being highly leveraged.
Nevertheless, "investors like to see financial institutions put these facilities in place," as they increase confidence in the banks' ability to keep its finances in order, she said.
-By Peppi Kiviniemi, Dow Jones Newswires, 44 20 7842 9496; [email protected]
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