Bloomberg News

Sprint Risk Eases as Loss Narrows; Credit Swaps in U.S. Decline

February 11, 2014

Credit-default swaps tied to Sprint Corp. (S:US) dropped after the third-largest U.S. wireless carrier reported a narrower loss for the fourth quarter. A measure of U.S. corporate credit risk declined.

The cost to protect against losses on the debt of Sprint Communications Inc. for five years fell 24 basis points to 281 basis points as of 3:05 p.m. in New York, according to prices compiled by data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s poised for the lowest closing level since Jan. 28.

Sprint recorded a net loss of $1.04 billion, less than the $1.32 billion loss a year earlier, the company said today in a statement. The Overland Park, Kansas-based carrier projects adjusted earnings before interest, taxes, depreciation and amortization of between $6.5 billion and $6.7 billion for 2014, an increase from $5.4 billion in 2013.

Following Sprint’s acquisition by Tokyo-based SoftBank Corp. in July for $21.6 billion, Chief Executive Officer Dan Hesse and SoftBank’s billionaire founder Masayoshi Son have been speaking with U.S. regulators about a bid for T-Mobile US Inc., according to people with knowledge of the matter, who asked not to be identified because the talks are private.

Yellen Steps

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, decreased 2.3 basis points to 65.4 basis points at 4:33 p.m. in New York, according to prices compiled by Bloomberg. The measure was poised to reach the lowest closing level since Jan. 21.

The swaps measure 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.

Federal Reserve Chairman Janet Yellen said more work is needed to restore the labor market to health and pledged to maintain her predecessor’s policies by scaling back stimulus in “measured steps.”

Yellen, delivering her first public remarks as Fed chairman, praised her predecessor, Ben S. Bernanke, for helping “make our economy and financial system stronger” and said she’d continue his strategy. She was addressing the House Financial Services Committee.

“The market is definitely relieved that she’s going to continue with Bernanke’s policies,” Scott Carmack, a money manager at Leader Capital Corp. in Portland, Oregon, said in a telephone interview.

Default Rate

Bank of America Corp. (BAC:US), the second-largest U.S. lender, issued $1.25 billion of 1.25 percent, three-year notes to yield 60 basis points more than similar-maturity Treasuries and $500 million of three-year floating-rate debt to yield 47 basis points more than the three-month London interbank offered rate, according to data compiled by Bloomberg. The bonds may be rated A2 by Moody’s Investors Service, the data show.

The trailing 12-month global speculative-grade corporate default rate was 2.5 percent in January, down from 2.8 percent in December, according to a report from Moody’s analysts led by Albert Metz. The ratings firm forecasts the measure will end this year at 2.2 percent.

No defaults were recorded among Moody’s-rated corporate debt issuers in the first month of 2014. That compares with five defaults during the same period last year.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, narrowed 7.3 basis points to 323.9, Bloomberg prices show. High-yield, high-risk bonds are rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

The extra yield investors demand to hold investment-grade corporate bonds rather than government debt declined 1 basis point to 112, Bloomberg data show.

To contact the reporter on this story: Jessica Summers in New York at jsummers20@bloomberg.net

To contact the editor responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net


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Companies Mentioned

  • S
    (Sprint Corp)
    • $7.68 USD
    • 0.04
    • 0.52%
  • BAC
    (Bank of America Corp)
    • $15.52 USD
    • 0.00
    • 0.0%
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