U.S. Company Credit Swaps Hold; DreamWorks Plans First Bond Sale

A gauge of U.S. corporate credit risk held at about a two-week low as a report showed service industries in the U.S. expanded in July. DreamWorks (DWA) Animation SKG Inc. plans to issue $300 million in seven-year bonds.

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, increased 0.1 basis point to a mid-price of 72.8 basis points as of 5:02 p.m. in New York, according to prices compiled by Bloomberg. The measure ended Aug. 2 at 72.7, the lowest since July 22.

Economic data is giving investors a mixed picture on when to expect the Federal Reserve to begin tapering its $85 billion in monthly bond buying that has bolstered credit markets, said Dorian Garay, a money manager at ING Investment Management in New York.

“We’re at a point where uncertainties about the timing of tapering are high,” Garay said in a telephone interview. “The market is still trying to find the right level in many indicators” that may lead the central bank to reduce asset purchases.

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.

DreamWorks Bonds

The Institute for Supply Management’s non-manufacturing index increased to 56 in July, the fastest pace in five months, from 52.2 in June, a report from the Tempe, Arizona-based group showed today. Readings higher than 50 indicate growth in the industries that make up almost 90 percent of the economy.

DreamWorks, the independent film studio and producer of “Shrek” films, is planning to sell $300 million of debt in seven-year notes in its first bond offering.

Proceeds from the sale will be used to repay loans under its revolving credit facility, according to a company statement today. Additional proceeds may be used for share buybacks and acquisitions.

The new bonds may be rated Ba3 by Moody’s Investors Service, according to a person with knowledge of the offering who asked not to be identified because terms aren’t set.

Total Bonds

Total SA (FP), Europe’s third-largest oil producer, sold $3 billion of dollar-denominated bonds in four parts, according to data compiled by Bloomberg.

The company issued $500 million of 1 percent debt due 2016 to yield 50 basis points more than similar-maturity Treasuries, $1 billion of 2.125 percent, five-year notes at a relative yield of 75 basis points and $1 billion of 3.7 percent securities maturing in 2024 at a 110 basis-point spread, the data show. It also sold $500 million of five-year floating rate notes to yield 57 basis points more than the three-month London interbank offered rate.

The average extra yield investors demand to own investment-grade debt instead of similar-maturity Treasuries tightened 1 basis point to 127.8 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, securities tightened 0.3 to 561.

The risk premium on the Markit CDX North American High Yield Index rose 1.2 basis points to 363.5, Bloomberg data show.

High-yield, high-risk debt is rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s.

Moody’s Liquidity-Stress Index for U.S. speculative-grade companies, which declines when corporate liquidity improves, fell to 3.4 percent in July from 3.7 percent the month prior, analysts led by John Puchalla wrote in an Aug. 2 report.

The gauge reached a record low of 2.8 percent in April, and remains below its historical average of 7.2 percent.

“Liquidity conditions remain healthy with modest corporate earnings growth and the recent favorable improvement in credit markets,” the analysts wrote. The index “continues to reflect a lack of widespread liquidity problems for U.S. speculative-grade companies.”

To contact the reporter on this story: Scott Harrison in New York at sharrison52@bloomberg.net

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

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