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Staples Credit Swaps Jump as Retailer Cuts Annual Sales Forecast

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Aug. 15 (Bloomberg) -- The cost to guard against losses on Staples Inc.’s debt surged to the highest in more than three years after the world’s largest office-supply retailer cut its annual sales forecast as weak U.S. growth depressed revenue.

Credit-default swaps tied to Framingham, Massachusetts-based Staples jumped 38.5 basis points to 348 basis points as of 8:44 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 highest since the contracts closed at 381.8 basis points on Jan. 12, 2009.

Staples said today sales will be unchanged this year, compared with projections in May of low single-digit growth, according to a statement distributed by Business Wire. Net income plunged 32 percent in the 13 weeks ended July 28 to $120.4 million.

Sales dropped to $5.5 billion in the period, missing the $5.72 billion in revenue called for by analysts. Full-year earnings per share at Staples will increase in the low single-digits from $1.37 a share last year, down from projections of high single-digit growth three months ago, according to the statement.

The price of Staples credit-default swaps, which typically rise as investor confidence deteriorates and fall as it improves, means investors would have to pay $348,000 annually to protect $10 million of the company’s debt for five years.

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.

To contact the reporter on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net

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

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