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U.S. Credit Swaps Pare Decline as Spain Says Rescue Not Imminent

Oct. 2 (Bloomberg) -- A gauge of U.S. corporate credit risk pared an earlier decrease as Spanish Prime Minister Mariano Rajoy said he has no near-term plans to request a bailout.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 0.1 basis point to a mid-price of 98.3 basis points at 4:39 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to Fifth & Pacific Cos. rose to the highest in more than two months.

Rajoy said at a press conference in Madrid today that a bailout request was not imminent. The credit-risk measure had earlier fallen to as low as 97.4 basis points after Economy Minister Luis de Guindos said yesterday the country was continuing to analyze whether to seek a rescue. Uncertainty regarding the resolution of the European debt crisis may heighten investor concern that a continued global slowdown will impair corporate balance sheets.

The European Central Bank needs “to print money or they’re going to get a civil war,” John Lekas, chief executive officer at Portland, Oregon-based Leader Capital Corp., said in a telephone interview. “They have plenty of room to print money.”

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

Heineken Bonds

Heineken NV, the world’s third-biggest beer-maker, sold $3.25 billion of three-, five-, 10.5- and 30-year dollar-denominated bonds, Bloomberg data show. The proceeds may be used to fund the company’s acquisition of Asia Pacific Breweries Ltd.

Toyota Motor Credit Corp., the U.S. finance unit of the Japanese automaker, issued $1.5 billion of five-year, dollar-denominated debt. The 1.25 percent notes were sold to yield 65 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

The average relative yield on investment-grade debt narrowed 2 basis points, led by a 3 basis-point tightening in spreads on the energy companies, Bloomberg data show. The average for speculative-grade debt fell 1 basis point, led by a 3 basis-point decline in spreads of financial firms and basic materials companies.

Slumping Sales

Credit swaps protecting against Fifth & Pacific’s default widened 57.1 basis points to 372.1, the highest since July 27, at 3:30 p.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.

The owner of fashion labels such as Kate Spade and Lucky Brand cut its profit forecast because of slumping sales of its Juicy Couture line. The New York-based company said yesterday its adjusted earnings before interest, taxes, depreciation and amortization may be as much as $115 million this year, down from a previous $140 million forecast.

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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