Bloomberg News

Credit Swaps Fall as Ukraine Tensions Ease; Viacom Plans Bonds

March 04, 2014

A measure of U.S. corporate credit risk approached a two-month low as comments by Russian President Vladimir Putin signaled the crisis in Ukraine won’t immediately escalate. Viacom Inc. (VIAB:US) is planning a $1.5 billion bond sale.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, declined 2.7 basis points to 62.6 basis points as of 4:52 p.m. in New York, according to prices compiled by Bloomberg. The gauge was poised to close at the lowest level this year.

Investors pushed the index lower after Putin, in his first public remarks since Ukraine said its Crimean peninsula had been taken over by Russian forces, said he reserved the right to use force to defend ethnic Russians while there’s “no such necessity” at present.

“The geopolitical situation seems a little less heady today, which is flowing into credit,” Jody Lurie, a corporate-credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. Investors “are calmer than they were yesterday.”

The swaps gauge 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.

Viacom, Burlington

Viacom, the media company controlled by billionaire Sumner Redstone, intends to issue $400 million of five-year notes to yield 67 basis points more than similar-maturity Treasuries, $550 million of 10-year debt to yield 127 basis points more than benchmarks and $550 million of securities maturing in 30 years with a relative yield of 162 basis points, according to a person with knowledge of the transaction.

The new securities may be rated Baa2 by Moody’s Investors Service, said the person, who asked not to be identified citing lack of authorization to speak publicly. Viacom last issued bonds in August.

The owner of MTV and Nickelodeon cable channels will redeem its $600 million of 4.375 percent notes maturing in September on April 3, the company said in a statement.

Burlington Northern Santa Fe LLC, which Warren Buffett’s Berkshire Hathaway Inc. (A:US) acquired in 2010, sold $500 million of 3.75 percent, 10-year notes to yield 110 basis points more than benchmarks and $1 billion of 4.9 percent, 30-year debentures with a relative yield of 128 basis points, according to data compiled by Bloomberg.

Proceeds may be used to repay debt and for general corporate purposes, Bloomberg data show.

RadioShack Bonds

RadioShack Corp. (RSH:US)’s $324.8 million of 6.75 percent bonds due May 2019 declined 11 cents to 55 cents on the dollar, the lowest level since the notes were issued in 2011, before trading at 56.3 cents as of 12:39 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The electronics chain that posted its eighth straight quarterly loss reported revenue of $935.4 million, below the $1.12 billion average estimate of 13 analysts surveyed by Bloomberg, and said it would close as many as 1,100 locations.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, narrowed 12.2 basis points to 311.2, Bloomberg prices show. Speculative-grade 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 0.6 basis point to 96.5, 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

  • VIAB
    (Viacom Inc)
    • $77.51 USD
    • -1.91
    • -2.46%
  • A
    (Agilent Technologies Inc)
    • $56.98 USD
    • -0.57
    • -1.0%
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