U.S. Corporate Credit Swaps Hold; Jefferies Finance to Sell Debt

A gauge of U.S. corporate credit risk held as data showed U.S. industrial production rose in February while consumer confidence slumped this month, signaling the economic recovery may be uneven.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, rose 0.4 basis point to a mid-price of 78.7 basis points at 4:07 p.m. in New York, according to prices compiled by Bloomberg. The gauge closed yesterday at the lowest level since Jan. 11, 2010.

Output at factories, mines and utilities climbed 0.7 percent, the most in three months and exceeding the median projection in a Bloomberg survey, figures from the Federal Reserve showed today in Washington. The Thomson Reuters/University of Michigan preliminary sentiment index for March fell to 71.8, below the median estimate of 78 expected by 67 economists surveyed by Bloomberg.

“Consumer sentiment is just one data point,” Mirko Mikelic, a senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, said today in a telephone interview. “You’re seeing a little bit of a reaction, but overall, everything is heading in a positive direction, particularly in the U.S.”

Jefferies Offering

The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. 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.

Jefferies Finance LLC, a commercial-finance company linked to Jefferies Group LLC (JEF), plans to raise $500 million with a sale of seven-year notes. Jefferies Finance intends to issue the securities for general corporate purposes, according to a person familiar with the offering who asked not to be identified, citing lack of authorization to speak publicly.

The unit originates and syndicates primarily secured loans to corporate borrowers. Jefferies Group, the New York-based investment bank, created the firm as a joint venture in 2004 with Babson Capital Management LLC and Massachusetts Mutual Life Insurance Co., according to a regulatory filing.

The risk premium on the Markit CDX North American High Yield Index rose 4.6 basis points to 393 basis points, Bloomberg prices show.

DirecTV Swaps

The cost to protect the debt of a unit of DirecTV (DTV) against default dropped to a record low after the company pulled out of bidding for Vivendi SA’s Brazilian phone and Internet subsidiary, GVT, forgoing an option to add more services in South America.

The five-year credit-default swaps that protect the debt of DirecTV Holdings LLC and DirecTV Financing Co. dropped 8.8 basis points to 133.6 basis points as of 4:01 p.m. in New York, Bloomberg prices show. DirecTV, the biggest U.S. satellite-TV carrier, and a group of private-equity firms had made preliminary offers to acquire the Brazilian business, people with knowledge of the matter said. Paris-based Vivendi (VIV) halted the planned sale on dissatisfaction with the bids it received, according to a company spokesman.

The average relative yield on speculative-grade, or junk- rated, debt added 1.1 basis points to 489.3 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.

To contact the reporter on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net

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

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