Dish Credit-Default Swaps Jump on Speculation of T-Mobile Bid

The cost to protect against losses on Dish Network Corp. (DISH) debt jumped on speculation that the satellite-television company may be considering a bid for T- Mobile USA.

Credit-default swaps on Englewood, Colorado-based Dish climbed 16.2 basis points to 345.8 basis points, the biggest jump since Nov. 9, according to data provider CMA. Earlier the contracts surged 30 basis points, according to data from broker Phoenix Partners Group.

After regulatory opposition killed Deutsche Telekom AG (DTE)’s sale of T-Mobile to AT&T Inc. on Dec. 19, speculation that Dish might be interested in acquiring T-Mobile has been “rather rampant,” according to Dave Novosel, an analyst at bond researcher Gimme Credit LLC in Chicago. Dish could partner with T-Mobile or another wireless company to create a strengthened competitor to AT&T (T) and Verizon Wireless, Chief Executive Officer Joseph Clayton said last month.

While a deal wouldn’t be “inconsistent with the recent moves they’ve made,” Novosel said “the nature of the deal makes some sense, but the size of the deal precludes something from happening.”

Aaron Johnson, a spokesman for Dish, didn’t immediately return a voicemail message seeking comment on the bond and credit-default swap moves.

Dish’s underperformance relative to DirecTV (DTV), the largest U.S. satellite-television provider, is pushing the company to adjust its strategy, Novosel said in a telephone interview today.

Sacrificing Balance Sheet

“AT&T had plenty of financial flexibility to borrow against its balance sheet whereas Dish doesn’t have nearly the flexibility; one because it just has higher leverage, and two it’s a much smaller company,” Novosel said. “I don’t think Dish would be willing to sacrifice its balance sheet for an acquisition of this nature.”

Dish’s $2 billion of 6.75 percent notes due 2021 dropped 2.25 cents to 105.75 cents on the dollar as of 3:53 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Dish and Google Inc. submitted a bid for T-Mobile, SNL Kagan said yesterday, citing unidentified sources.

Credit-default swaps tied to Dish’s debt, which typically rise as perceptions of creditworthiness deteriorate, are down from 551.5 basis points on Oct. 4, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

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.

Markit CDX

A benchmark gauge of U.S. company credit risk held at about a two-month low. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined for a third day, decreasing 0.4 basis point to a mid-price of 116.1 basis points, the lowest level since Oct. 31, at 5:20 p.m. in New York, according to Markit Group Ltd.

The gauge advanced earlier as David Riley, head of the sovereign-debt unit at Fitch Ratings, said the European Central Bank should step up its government bond purchases to contain the euro region’s debt crisis. The index, which typically rises as investor confidence deteriorates and falls as it improves, increased as much as 1.4 basis points.

The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, was little changed at 37.8 basis points.

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

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