Bloomberg News

Company Credit Swaps Fall as IBM, Google Reports Beat Estimates

January 22, 2013

A gauge of U.S. corporate credit risk fell as 75 percent of companies that have reported profits for the last quarter exceed analyst estimates.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, fell 1 basis point from Jan. 18 to a mid-price of 86.1 basis points as of 5:07 p.m. in New York, according to prices compiled by Bloomberg. Bond markets were closed yesterday for the Martin Luther King Jr. holiday.

Confidence that the economy is gaining strength is building, as 63 of the 84 companies in the Standard & Poor’s 500 Index that have reported fourth-quarter earnings beat forecasts, data compiled by Bloomberg show. Among information technology companies, 15 of 18 reported positive surprises.

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.

Google Inc., owner of the world’s largest search engine, said today that fourth-quarter profit excluding certain items rose to $10.65 a share. Analysts had projected per-share earnings of $10.50.

International Business Machines Corp., the world’s biggest computer-services provider, forecast earnings in 2013 will be at least $16.70 a share. That compares with the $16.64 average estimate of analysts tracked by Bloomberg.

High Yield

The risk premium on the Markit CDX North American High Yield Index declined 2.7 basis points to 436.3 basis points, Bloomberg prices show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.

Tenet Healthcare Corp. (THC:US), the third-largest publicly traded U.S. hospital chain, sold $850 million of bonds to fund repurchases of outstanding debt. The 4.5 percent notes due April 2021, rated B1 by Moody’s, yield 307 basis points more than similar-maturity Treasuries, Bloomberg data show.

Proceeds will fund purchases of Tenet’s $714 million of 10 percent, first-lien debt due May 2018, the Dallas-based company said in a statement.

The average relative yield on junk-rated debt was little changed at 4.74 percentage points, Bloomberg data show.

To contact the reporter on this story: Madhura Karnik in New York at mkarnik@bloomberg.net

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


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Companies Mentioned

  • THC
    (Tenet Healthcare Corp)
    • $45.27 USD
    • 0.11
    • 0.24%
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