The cost of insuring against default on Glencore International Plc’s bonds fell by a record after the commodities trader raised its offer for mining company Xstrata Plc in an effort to salvage its takeover.
Credit-default swaps on Glencore dropped 80 basis points to 241, the lowest since March 5, and the biggest daily decrease since Bloomberg began compiling data in 2005. Contracts on Xstrata fell 42 basis points to 142, the biggest drop since data began in 2007.
Glencore, owner of 34 percent of Xstrata, increased its all-stock offer to 3.05 of its shares for each one in its target from 2.8, and proposed that its Chief Executive Officer Ivan Glasenberg holds the role in the combined group rather than Xstrata’s CEO Mick Davis. The revised terms were meant to overcome opposition from Xstrata investors including Qatar Holding LLC and Knight Vinke Asset Management LLC.
“If the deal happens it’s certainly good for Glencore bonds and for Xstrata it’s mildly positive,” said Michael Ridley, a credit analyst at Mizuho International Plc in London.
A basis point on a credit-default swap protecting 10 million euros ($12.7 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
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