Sara Lee Credit Swaps Jump on Revived Speculation of Buyout

Credit-default swaps on Sara Lee Corp. climbed to a record following a report that buyout firm Apollo Global Management LLC teamed up with investor C. Dean Metropoulos to consider a bid for the company.

Contracts protecting Sara Lee’s debt jumped 41.9 basis points to 200.7 basis points, according to data provider CMA, above the previous high of 186.4 on Jan. 5.

“There’s been a lot of talk and concern in the market about shareholder-friendly activity picking up, and this would fit the bill,” said David Brown, who helps oversee $82 billion of fixed-income assets at Neuberger Berman Management LLC in Chicago. “Other names that fit the profile of potential equity- friendly transactions are also anywhere from 3 to 7 basis points wider today.”

JBS SA, the Brazilian meat processor, may make a new offer for Downers Grove, Illinois-based Sara Lee, maker of Ball Park hotdogs and Jimmy Dean breakfast foods, according to two people with knowledge of the matter. A JBS bid last month was rejected as too low, the people said.

JBS executives are traveling to the U.S. this week to help prevent their takeover efforts from collapsing, said the people, who declined to be identified because the matter is private.

The Wall Street Journal reported on Apollo’s interest in Sara Lee yesterday, citing unidentified people familiar with the matter. The group also includes Bain Capital and TPG Capital, the Journal reported.

‘Rumor Fatigue’

Contracts on Computer Sciences Corp., which jumped last September after a Jefferies & Co. analyst said it would be an attractive target, increased to the highest in two months, adding 7.3 basis points to 150, CMA data show. Swaps on the debt of ConAgra Foods Inc., the Omaha, Nebraska-based maker of Banquet and Healthy Choice dinners, climbed 4.7 basis points to 119.1, according to CMA.

“Because there have been so many rumored transactions which haven’t come to fruition, the widening in sympathy to rumors appears to be less significant than it was in the past,” Brown said. “Call it rumor fatigue.”

Credit-default swap contracts rise if a company is deemed a buyout risk because the debt added to its balance sheet to fund the takeover erodes credit quality.

The cost of protecting U.S. corporate bonds from default climbed to the highest level in a month today as European governments prepared to borrow at least $43 billion this week.

European Concern

Portugal, Spain and Italy are scheduled to hold their first bond auctions this year after borrowing costs increased at bill sales last week. Germany may be softening its opposition to expanding the 750 billion-euro ($971 billion) rescue facility for the region’s most-indebted countries, after Chancellor Angela Merkel’s chief spokesman, Steffen Seibert, declined to repeat the nation’s objections to restocking the fund.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.6 basis points to a mid-price of 89.1 as of 6:50 p.m. in New York, according to index administrator Markit Group Ltd.

The index, which typically rises as investor confidence deteriorates and falls as it improves, is at the highest level since reaching 90 basis points on Dec. 7.

Credit swaps 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.

To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

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