Bloomberg News

Corporate Credit-Default Swaps in U.S. Fall; Abbott Plans Bonds

November 05, 2012

A gauge of U.S. corporate credit risk reversed an earlier rise as service industries showed continued growth in October and Americans prepared to vote in the presidential election.

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, declined 0.6 basis point to a mid-price of 96.9 basis points at 4:01 p.m. in New York, according to prices compiled by Bloomberg. The measure fell from an intraday high of 98.6.

The Institute for Supply Management’s non-manufacturing index declined to 54.2 last month from 55.1 in September, the Tempe, Arizona-based group said today. A measure above 50 signals expansion and the October figure exceeded the third- quarter average, which may allay investor concern that a weakening economic recovery will impair corporate balance sheets.

“You’re going to have a couple of thin days this week waiting for the election results to come in,” Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, said in a telephone interview. “It’s a big week with the election here and the ballot initiative in Greece.”

Greek lawmakers are likely to hold a ballot on austerity measures this week, before a meeting of euro-area finance ministers on Nov. 12.

Abbott Laboratories

The credit-swaps index 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.

Abbott Laboratories (ABT:US), the drug and medical-device company that plans to split in two, is planning to sell $14.7 billion of bonds in the largest dollar-denominated offering in more than three years. Through its AbbVie Inc. pharmaceutical unit, Abbott may sell bonds in six parts ranging in size from $500 million to $4 billion, according to a person familiar with the offering who asked not to be identified because terms aren’t set.

The average relative yield on investment-grade debt increased 1 basis point, led by spreads on the subordinated bonds of financial companies, which widened 2 basis points.

Credit swaps tied to New Albertson’s Inc. fell 3.7 percentage points to 26 percent upfront as of 3:30 p.m. in New York according to data provider CMA, which is owned by McGraw- Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

New Albertson’s

That’s in addition to 5 percent a year, meaning it would cost $2.6 million initially and $500,000 annually to protect $10 million of debt. Contracts guarding against the company’s default are trading at the lowest since July, Bloomberg data show.

Cerberus Capital Management LP is in talks to buy all of grocery chain Supervalu Inc. (SVU:US) in order to merge operations with its Albertsons stores, three people with knowledge of the matter said Nov. 2. Cerberus, which specializes in distressed investing, bought a stake in Albertson’s Inc. in 2006 with a group that included Supervalu.

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

  • ABT
    (Abbott Laboratories)
    • $42.12 USD
    • -0.74
    • -1.76%
  • SVU
    (SUPERVALU Inc)
    • $9.17 USD
    • -0.28
    • -3.05%
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