Bloomberg News

Finmeccanica Bonds Decline as CEO Arrest Spurs Downgrade Concern

February 12, 2013

Finmeccanica SpA bonds fell to the lowest in 15 months after the arrest of Chief Executive Officer Giuseppe Orsi triggered concern the company faces a credit rating downgrade.

Finmeccanica’s 5.25 percent bonds due 2022 dropped as much as 3 percent, or 3.19 cents on the euro, to 97.45 cents, Bloomberg Bond Trader prices show. The cost of credit-default swaps insuring the Rome-based company’s debt for five years jumped 23 basis points to 370, at 10:50 a.m. in London, the biggest increase since November 2011.

Orsi was arrested in connection with an inquiry into Italy’s biggest defense company paying bribes to win a contract for the sale of 12 helicopters in India. The move “significantly increased” the likelihood of a ratings downgrade, Royal Bank of Scotland Group Plc analyst Rodolphe Ranouil said in a note to clients.

Finmeccanica said in a statement it expresses “solidarity” with Orsi and denies any wrongdoing. The company has the lowest investment grade BBB- ranking from Fitch Ratings. Moody’s Investors Service grades it an equivalent Baa3, while Standard & Poor’s downgraded it to a junk BB+ grade in January, citing concern Finmeccanica won’t be able to improve capital levels sufficiently by selling assets.

Fitch said in November it could downgrade the company to junk if there are “significant adverse findings” in the corruption probe.

Finmeccanica, which is 30 percent-owned by the Italian government, is undertaking its biggest overhaul in at least a decade. It’s seeking to sell 1 billion euros ($1.3 billion) of assets to cut more than 4 billion euros of debt. The company reported a record loss in 2011, when it booked 3.2 billion euros of one-time charges and writedowns.

Vodafone Bond Sale

The cost of insuring debt of Vodafone Group Plc increased after the U.K. phone company sold $6 billion of bonds yesterday, the largest issue in the currency in more than three weeks. Credit-default swaps insuring the Newbury-based company’s senior debt rose two basis points to 86.

National Grid Plc plans to sell benchmark euro-denominated bonds due in five years to yield 70 basis points more than the swap rate, the tight end of marketed guidance, a person with knowledge of the deal said. Mercedes-Benz Financial Services Italia, a unit of the luxury carmaker, plans to issue 150 million euros of floating-rate notes due August 2015.

In credit derivatives markets, the Markit iTraxx Europe Index was little changed at 116 basis points. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly speculative-grade ratings was unchanged at 455 basis points.

The Markit iTraxx Financial Index of swaps on 25 banks and insurers fell one basis point to 155.

Credit-default 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. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.

To contact the reporter on this story: Hannah Benjamin in London at hbenjamin1@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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