Credit Swaps in U.S. Fall Most in 6 Days; Momentive Plans Bonds

A gauge of U.S. corporate credit risk fell the most in six days after first-time claims for unemployment benefits in the U.S. unexpectedly decreased last week.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, dropped 1.7 basis points to a mid-price of 97.3 basis points at 4:56 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to Sprint Nextel Corp. declined to the lowest in more than a year amid reports of a partial takeover.

The swaps measure plunged as applications for jobless benefits fell 30,000 to 339,000 in the week ended Oct. 6, Labor Department figures showed today, reassuring investors that the economy is improving, which would give a boost to corporate creditworthiness. That’s the fewest first-time claims since February 2008. Standard & Poor’s lowered Spain’s debt rating yesterday two levels to BBB-, one step above junk.

Investors think that because of the downgrade “maybe now Spain won’t have a choice and maybe they will be forced into requesting a bailout,” Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, said in a telephone interview. “And when you tack on the jobs numbers today” credit risk is seen to lessen, he said.

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.

Momentive Bonds

Momentive Performance Materials Holdings LLC, the silicone production unit of Apollo Global Management LLC, may issue $1.1 billion of eight-year bonds to yield from 8.75 percent to 9 percent, according to a person familiar with the transaction, who asked not to be identified because the terms aren’t set.

The proceeds will be used to repay the company’s senior secured credit facilities, to purchase, redeem or discharge its $200 million of 12.5 percent, second-lien notes and for general corporate purposes, Columbus, Ohio-based Momentive said in a statement today.

The average relative yield on speculative-grade debt narrowed 2 basis points, led by spreads on the bonds of communications companies, which fell 15 basis points, Bloomberg data show. Average spreads on investment-grade debt narrowed 1 basis point, the data show.

Sprint Swaps

Contracts protecting against Sprint’s default plummeted 137.2 basis points to 358.3 basis points, the lowest since July 2011, as of 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. That means investors would pay $358,300 annually to protect $10 million of the company’s debt for five years.

Sprint said it’s in talks with Softbank Corp. for a “substantial investment” from Japan’s third-largest mobile-phone company. The deal may involve Softbank taking a stake of as much as 75 percent of Sprint, according to a person familiar with the matter, who asked not to be identified because the discussions are private.

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