Bloomberg News

Corporate Credit Swaps in U.S. Decline; Spectrum Plans Bond Sale

October 31, 2012

A gauge of U.S. corporate credit risk declined as the nation’s financial markets opened for the first time since Hurricane Sandy paralyzed the New York region.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, fell 1.1 basis points to a mid-price of 99.6 basis points at 4:42 p.m. in New York, according to prices compiled by Bloomberg.

The bond market resumed trading today after the Securities Industry & Financial Markets Association recommended it close at noon Oct. 29 in New York before the biggest Atlantic storm in history. Fixed income volumes remained subdued.

The credit-risk measure declined as Ford Motor Co. and General Motors Co. (GM:US) reported better-than-expected profit in the most recent quarter, which may allay investor concerns that the economic recovery is weakening and bolster confidence in companies’ ability to repay debt.

The index has looked volatile today and liquidity could be a lot thinner with some traders still unable to operate because of the storm, said Mark Pibl, head of credit strategy at New York-based Cortview Capital Securities LLC. The good numbers reported by companies including GM are the major mover, he said.

Stymied Trading

Bond volumes of 2,767 trades of $1 million or more as of 4:22 p.m. in New York compared with a daily average of 4,319 during the three months before the storm, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The credit-swaps index, which touched as low as 97.9 basis points earlier today, typically falls as investor confidence improves and rises as it deteriorates. 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.

Spectrum Brands Holdings Inc. (SPB:US), the maker of consumer goods from batteries to pet food, plans to issue $1.04 billion of eight- and 10-year bonds to fund its $1.4 billion acquisition of Stanley Black & Decker Inc. (SWK:US)’s hardware unit, according to a person familiar with the offering who asked not to be identified because terms aren’t set.

Calik Holding AS, the Istanbul-based group with interests in energy and media, may sell $300 million of five-year, dollar- denominated bonds as soon as this week. The debt may yield as much as 10.5 percent according to a person familiar with the offering.

The average relative yield on speculative-grade bonds widened 3 basis points, led by a 24 basis point rise in the spreads of utilities companies, data compiled by Bloomberg show.

To contact the reporter on this story: Peter Rawlings in New York at prawlings@bloomberg.net

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


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Companies Mentioned

  • GM
    (General Motors Co)
    • $34.8 USD
    • 0.12
    • 0.34%
  • SPB
    (Spectrum Brands Holdings Inc)
    • $86.6 USD
    • -0.40
    • -0.46%
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