Bloomberg News

Nexen Swaps Tumble, Bonds Surge After $15.1 Billion Cnooc Offer

July 23, 2012

The cost to guard against losses on the debt of Canada’s Nexen Inc. (NXY) fell to the lowest in almost a year and its bonds surged after Cnooc Ltd. (CEO:US) agreed to buy the oil producer for $15.1 billion in the biggest overseas purchase by a Chinese firm.

Credit-default swaps tied to Nexen declined 86.7 basis points to a mid-price of 140.3 basis points, down from 227 basis points on July 20, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That’s about the lowest since the contracts closed at 139 basis points on Aug. 4, according to data compiled by Bloomberg.

Cnooc, rated six levels above (CEO:US) the Calgary-based company at Aa3 by Moody’s Investors Service, would gain assets in Canada, the U.K., West Africa and the Gulf of Mexico that may boost the Chinese company’s output by 20 percent. Nexen, which has about $3.9 billion of bonds outstanding, had a ratio of total debt to earnings of 1.11 last year, more than three times Cnooc (883)’s leverage, Bloomberg data show.

Nexen’s $1.25 billion of 6.4 percent bonds maturing in 2037 climbed 14.8 cents from last week to a record 126.9 cents on the dollar at 9:12 a.m. in New York, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. The yield fell to 4.57 percent, or 209.8 basis points more than similar-maturity Treasuries, compared with a 296 basis-point spread on July 20.

The deal is “obviously very positive” for Nexen bondholders, Philip Adams of Chicago-based bond researcher Gimme Credit LLC wrote today in a research note.

‘Positive’ Transaction

The level of Nexen’s credit-default swaps, which typically fall as investor confidence improves and rise as it deteriorates, means investors would pay $140,300 a year to protect $10 million of the company’s debt.

The contracts 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.

Cnooc, China’s largest offshore oil and gas explorer, will pay $27.50 for each common share of Calgary-based Nexen, according to the Beijing-based company’s statement to the Hong Kong stock exchange today.

To contact the reporters on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net; Charles Mead in New York at cmead11@bloomberg.net

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


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Companies Mentioned

  • CEO
    (CNOOC Ltd)
    • $154.75 USD
    • 1.45
    • 0.94%
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