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U.S. Corporate Credit Swaps Climb; HCA Sells $1 Billion of Bonds

A gauge of U.S. corporate credit risk rose for the first time in four days as a drop in U.S. manufacturing and concern about the so-called fiscal cliff offset an advance in Chinese economic data.

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, rose 1.3 basis points to a mid-price of 99.9 basis points at 4:44 p.m. in New York, according to prices compiled by Bloomberg.

House Republicans proposed a budget plan that rejected President Barack Obama’s demand for tax rate increases, heightening concern that a failure to reach a compromise will prolong the economic slowdown and hinder companies’ ability to repay debt. China’s official Purchasing Managers’ Index climbed to the highest level in seven months as the U.S. Institute for Supply Management’s factory index unexpectedly dropped to 49.5, the lowest since July 2009.

“The fiscal cliff is weighing on the market, these discussions going back and forth aren’t contributing,” Dorian Garay, a New York-based money manager for an investment-grade debt fund at ING Investment Management, said in a telephone interview. “From the corporate side, many companies have been delaying spending until they have more clarity.”

Manufacturing in the U.S. contracted in November as orders dropped to a three-month low and exports slowed, the Institute for Supply Management said today. Economists projected the index would slow to 51.4, according to the median forecast in a Bloomberg survey.

Fiscal Cliff

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.

House Speaker John Boehner today called the new offer a “credible plan.” The proposal, in a letter to Obama from Boehner and other House Republican leaders, calls for $1.4 trillion in spending cuts and $800 billion in new revenue by limiting tax breaks and capping deductions for top earners.

China’s official manufacturing index climbed to 50.6 in November as new orders and export demand advanced, the National Bureau of Statistics and China Federation of Logistics and Purchasing reported Dec. 1 in Beijing. That compares with the 50.8 median estimate in a Bloomberg News survey of 28 analysts and 50.2 the previous month. A private gauge of manufacturing climbed to 50.5, a separate report showed.

HCA Issuance

Markets “started off stronger, probably based on the Chinese number, and then it was tempered by our numbers,” Robert Grimm, head of high-yield trading at Odeon Capital Group LLC in Greenwich, Connecticut, said in a telephone interview. “Our economy is definitely slowing.”

HCA Holdings Inc., the biggest U.S. for-profit hospital operator, sold $1 billion of bonds to make a distribution to stockholders. The Nashville, Tennessee-based company issued the 6.25 percent debt due February 2021 to yield 462 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The new bonds are rated B3 by Moody’s Investors Service and an equivalent B- by Fitch Ratings, the ratings companies said today in separate reports.

Junk Spreads

The average relative yield on junk-rated debt narrowed 4 basis points to 5.74 percentage points today, led by spreads on the bonds of materials companies, which fell 13 basis points to 5.2 percentage points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

The risk premium on the Markit CDX North American High Yield Index increased 5.9 basis points to 505.8 basis points, according to prices compiled by Bloomberg.

Credit swaps protecting against losses on the debt of Dean Foods Co. dropped 51.1 basis points to 348.9 basis points as of 4:30 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 Dallas, Texas-based company agreed to sell its Morningstar Foods unit for $1.45 billion to Saputo Inc., Canada’s largest dairy processor. Chief Executive Officer Gregg Tanner said Dean Foods will “use substantially all of the net proceeds from the sale to significantly reduce outstanding debt, resulting in a stronger balance sheet and increased flexibility to execute against our strategies for our core dairy business,” according to a statement distributed by PR Newswire today.

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