The cost to protect against losses on the debt of Dole Food Co. (DOLE:US) rose to the highest level in nine months as Chairman and Chief Executive Officer David Murdock offered about $645 million to buy out other shareholders.
Five-year credit-default swaps tied to Dole jumped 139 basis points to a mid-price of 332 basis points at 4:16 p.m. in New York, according to data provider CMA, which is owned by McGraw Hill Financial and compiles prices quoted by dealers in the privately negotiated market. The contracts are trading at the highest since September and mean it would cost the equivalent of $332,000 annually to protect $10 million of debt for five years.
Murdock offered $12 a share in cash for the 60 percent stake that isn’t owned by him or his family, he said today in a statement. He also would assume the debt and other obligations of the junk-rated fresh fruit and vegetable producer and marketer, according to the statement.
“Any sort of buyout would mean they would probably take on more debt and the equity would change hands,” James Lee, a senior fixed-income analyst at Calvert Investment Management Inc., said in a telephone interview. “There is uncertainty about a change of ownership, and the market hates uncertainty.”
Westlake Village, California-based Dole had $1.64 billion of total debt as of March 23, including $155 million of 8.75 percent notes maturing July 15, according to data compiled by Bloomberg. Even as Dole shares surged 22 percent to close above the offer price at $12.46 today, “we believe there is a relatively high probability of completion,” Barclays Plc analysts Hale Holden, Jamie Robins and Jonathan Kahnowitz in New York wrote in a note.
A gauge of U.S. corporate credit risk rose as the Bank of Japan refrained from expanding stimulus efforts and as concern lingered that the Federal Reserve will reduce its bond buying.
The Markit CDX North American Investment Grade Index, a credit-swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 1.3 basis points to a mid-price of 85.4 basis points at 4:46 p.m. in New York, according to prices compiled by Bloomberg. The index, which reached 88.7 basis points on June 6, the highest intraday level since April 5, climbed to as high as 87.8 earlier today.
Central banks worldwide have suppressed borrowing costs through monetary policy and bond purchases to support a global economy that expanded at the slowest pace last year since 2009. Bank of Japan Governor Haruhiko Kuroda said today he sees no need to expand monetary stimulus immediately, while Fed Chairman Ben S. Bernanke suggested last month the U.S. central bank could curb its $85 billion monthly bond purchases if the employment outlook shows sustained improvement.
“There’s just a general fear of fixed-income investments in this environment, and you’re seeing broad-based weakness,” Anthony Valeri, a market strategist in San Diego at LPL Financial Corp., said by telephone. “There really is no place to hide in fixed income.”
The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. 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.
The risk premium on the Markit CDX North American High Yield Index increased 16.1 basis points to 433.8 basis points, the highest since March 27.
Pacnet Ltd., the speculative-grade operator of undersea phone and Internet cables in Asia, plans to sell dollar-denominated senior secured notes later this month, in part to buy back $300 million of notes due 2015, Moody’s Investors Service said in a report.
The company will offer cash to holders of the 2015 notes, according to a person with knowledge of the matter. Pacnet is also seeking to amend the debt’s terms to remove restrictive covenants and certain terms governing events of default, the person said, asking not to be identified because the details are private.
Pacnet plans to meet investors in Singapore, Hong Kong, London and the U.S. starting tomorrow to discuss the new bond sale, which will be after June 21, subject to market conditions, the person said.
The average relative yield on speculative-grade, or junk-rated, debt widened 14.7 basis points to 548 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.
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