Bonds of Anadarko Petroleum Corp. (APC) fell to the lowest level in two years after a judge ruled the company may have to pay as much as $14 billion for environmental cleanup. A gauge of U.S. company credit risk was little changed.
Anadarko’s $750 million of 6.2 percent bonds due March 2040 dropped 3.8 cents on the dollar to 109.8 cents to yield 5.49 percent at 11:07 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the lowest level since closing at 109.5 in December 2011.
The Woodlands, Texas-based Anadarko said it expects to appeal yesterday’s ruling linked to the 2005 spinoff of Tronox Inc., which filed for bankruptcy in 2009 and sued Anadarko and its Kerr-McGee unit.
“It will be years before significant cash goes out the door -- unless, of course, the parties agree to a settlement, which is perhaps what the judge is attempting to motivate,” Philip Adams, an analyst at debt researcher Gimme Credit LLC in Chicago, wrote today in a report.
Five-year credit-default swaps linked to the oil and natural gas producer jumped 14 basis points to 98.5, the highest level since July, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. Anadarko is rated Baa3 by Moody’s Investors Service and BBB- at Standard & Poor’s.
Credit swaps, which typically rise as investor confidence deteriorates and fall as it improves, 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.
The Markit CDX North American Investment Grade Index declined 0.3 basis point to 69.9, according to prices compiled by Bloomberg, after the House of Representatives passed the first bipartisan federal budget in four years, easing concern about another government shutdown. The measure has averaged 80 basis points this year.
Contracts on 100 speculative-grade companies tracked by the Markit CDX North American High Yield Index narrowed 2.1 basis points to 343.4, Bloomberg prices show. That’s being helped by declines in swaps linked to Bombardier Inc., as fresh aircraft orders ease concern its new jet program will weigh on profits, and Ally Financial Inc., whose credit rating S&P raised to BB yesterday.
High-yield, high-risk, or junk, bonds are rated below Baa3 by Moody’s and less than BBB- at S&P. A basis point is 0.01 percentage point.
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