Concern About Gap Following Old Navy Head Exit Now Showing Up In Credit Market

The negative sentiment toward Gap Inc. following the departure of the head of its Old Navy brand to become chief executive of Ralph Lauren is now showing up in the credit market. Credit default swaps written on Gap debt have widened by 50% in the last week, or 94% over the month, pricing at their widest level in more than three years, Fitch Solutions said Tuesday. CDS are a form of protection against the possibility of a bond issuer defaulting on its debt, and they move wider when there is the perception of greater risk. Five-year CDS on The Gap have traded at levels consistent with a BBB rating, the last level of investment grade, all year, but are now pricing as if the company's rating was in junk territory, said Fitch. The move "likely reflects market concerns stemming from the exit of Old Navy's chief, who had been the driving force behind that brand's turn-around,' said Fitch director Diana Allmendinger. Gap had long-term debt of $1.3 billion at the end of its second fiscal-quarter through Aug. 1. Meanwhile, shares were down 1.2% Tuesday, and have lost 32% in the year so far, while the S&P 500 has fallen 3.6%.

Copyright © 2015 MarketWatch, Inc.