H&R Block Swaps Jump Most in Six Months After Debt Refinancing

The cost to guard against losses on the debt of H&R Block Inc. (HRB) jumped the most in six months after the company issued debt to refinance $600 million of obligations due in 2013.

Credit-default swaps tied to the company’s Block Financial unit rose 52 basis points to 336 basis points as of 9:18 a.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That’s the biggest advance since they increased 112.8 basis points April 25.

The largest U.S. tax preparer yesterday sold $500 million of debt in its first benchmark offering in almost five years. Proceeds will probably be used to repay its 7.875 percent bonds due in January, the company said in a regulatory filing.

The new 5.5 percent notes due November 2022 traded at 98 cents on the dollar to yield 5.77 percent at 9:46 a.m., according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Banks, hedge funds and other money managers had bought and sold credit swaps that protect against a default on a net $1 billion of the Kansas City, Missouri-based company’s obligations as of Oct. 12, according to the Depository Trust & Clearing Corp., which runs a central repository for the market.

The level of Block Financial credit swaps, which typically rise as investor confidence deteriorates and falls as it improves, means investors would have to pay $336,000 annually to protect $10 million of the company’s debt for five years. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

To contact the reporter on this story: Peter Rawlings in New York at prawlings@bloomberg.net

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

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