Bloomberg News

CBS Credit Swaps Jump on Potential Sale of its Billboard Unit

June 05, 2012

The cost to protect against losses on the debt of CBS Corp. (CBS:US), owner of the most-watched U.S. television network, jumped by the most in more than eight months as the company agreed to meet potential buyers for its billboard unit.

Credit-default swaps on the company climbed 13.1 basis points to a mid-price of 118 basis points at 4:45 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest increase since climbing 14 basis points on Oct. 3.

The media company agreed to listen to proposals from possible buyers for its outdoor advertising unit, according to a person with knowledge of the situation, who wasn’t authorized to talk publicly. The swaps contracts linked to the company rose as its bonds (CBS:US) were little changed.

“The widening today reflects a risk of a CDS succession event,” Hale Holden, a Barclays Plc analyst, said in a telephone interview, refering to an occurrence when one entity becomes responsible for the obligations of another. “If there’s a debt exchange associated with this possible spinoff, it could result in the CDS contracts getting split.”

In such a situation a portion of the securities referenced by the swaps would shift to the new company, increasing the risk for investors that sold protection on the CBS bonds.

The average cost of the contracts referencing the two companies’ debt may be wider than the current level of CBS’s credit swaps, indicating why the CDS widened while the bonds remained little changed, according to Holden.

CBS Bonds

The television-network owner’s $700 million of 3.375 percent notes maturing in March 2022 fell 1 cent to 99.3 cents on the dollar at 1:56 p.m., according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds widened about 2.5 basis points to yield 190 basis points more than similar-maturity Treasuries.

“The question is what they would do with the proceeds,” said Melissa Link, an analyst at Fitch Ratings, who said a sale of the unit would be a credit-neutral event. “Credit quality and solid BBB ratings are important to them and they would not do anything that would jeopardize it.”

New York-based CBS is rated two levels above junk at BBB by Fitch, an equivalent BBB by Standard & Poor’s and Baa2 by Moody’s Investors Service. The company had $5.9 billion of long- term debt as of March 31, according to a May 1 regulatory filing.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 1.6 basis point to a mid-price of 125.9 basis points at 4:41 p.m., Bloomberg prices show. The index typically declines as investor confidence improves and rises as it deteriorates.

Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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Companies Mentioned

  • CBS
    (CBS Corp)
    • $61.35 USD
    • -0.45
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