Bloomberg News

U.S. Company Credit Swaps Drop; Loews Issues $1 Billion of Debt

May 02, 2013

A gauge of U.S. corporate credit risk fell to the lowest level in more than five years as the European Central Bank cut its key interest rate to a record low and initial jobless claims declined.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, dropped 3.7 basis points to a mid-price of 74.3 basis points at 4:23 p.m. in New York, according to prices compiled by Bloomberg. That’s the lowest intraday level since December 2007 and erases yesterday’s 3.1 basis-point jump.

Policy makers meeting in Bratislava today lowered the main refinancing rate to 0.5 percent from 0.75 percent, a move predicted by 45 of 70 economists in a Bloomberg News survey. The ECB kept the deposit rate at zero and reduced the marginal lending rate to 1 percent from 1.5 percent. In the U.S., applications for unemployment insurance payments fell 18,000 to 324,000 in the week ended April 27, the fewest since January 2008, Labor Department figures showed today in Washington.

“Even if you’re a bear, you have to admit that we’re not in recession or in danger of going into recession,” James Lee, senior high-yield analyst for Calvert Investment Management Inc. in Bethesda, Maryland, said in a telephone interview. “Europe is sort of a major wildcard risk out there, and concern ebbs and flows. What the ECB did today was in line with majority thinking.”

Loews Debt

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.

Loews Corp. (L:US), the New York-based conglomerate with holdings in insurance, energy and hotels, issued $1 billion of bonds in its first debt sale in more than eight years.

The holding company controlled (L:US) by New York’s Tisch family sold $500 million of 2.625 percent, 10-year notes to yield 105 basis points more than similar-maturity Treasuries and an equal portion of 4.125 percent, 30-year securities with a relative yield of 135 basis points, according to data compiled by Bloomberg. Proceeds will be used for general corporate purposes, according to a regulatory filing (L:US).

The new bonds are rated A2 by Moody’s Investors Service, according to a rating report today.

Liquidity Stress

The risk premium on the Markit CDX North American High Yield Index declined 15.2 basis points to 358.5 basis points, Bloomberg prices show.

Moody’s liquidity-stress index fell to a record low of 2.8 percent in April from 3.2 percent the month before, according to a report yesterday from Moody’s. The gauge has averaged 7.4 percent since 2002 and reached a high of 20.9 percent in March 2009.

“Strong demand for high-yield debt is allowing companies to proactively shore up their cash and maturity positions before they become problems for liquidity,” analysts led by John Puchalla said in the note. “The market is looking past sluggish growth in corporate revenues and operating earnings, as well as record-low yields for high-yield bonds.”

The cost to protect against a default (BZH:US) by Beazer Homes USA Inc. (BZH:US) dropped as the Atlanta-based homebuilder posted fiscal second-quarter revenue that beat analysts’ estimates and forecast profitability for its second half.

Beazer Sales

Five-year credit swaps tied to Beazer debt dropped 51.8 basis points to 428.2 basis points by 3:30 p.m., according to data provider CMA, which is owned by McGraw Hill Financial and compiles prices quoted by dealers in the privately negotiated market. That means it would cost the equivalent of $428,200 annually to protect $10 million of obligations for five years.

Beazer booked (BZH:US) $287.9 million in sales for the quarter ended March 31, according to a company statement, beating the $253.6 million expected by 10 analysts surveyed by Bloomberg. The homebuilder reported an adjusted loss of 63 cents a share, while analysts projected a 69-cent loss. A higher backlog, improving margins and better cost control should allow the company to be profitable for the second half of fiscal 2013, Chief Executive Officer Allan Merrill said today in the statement.

The average relative yield on speculative-grade, or junk- rated, debt tightened 2.9 basis points to 506.4 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s.

To contact the reporter on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net

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


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Companies Mentioned

  • L
    (Loews Corp)
    • $42.43 USD
    • 0.02
    • 0.05%
  • BZH
    (Beazer Homes USA Inc)
    • $18.34 USD
    • -0.20
    • -1.09%
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