The cost of protecting Office Depot Inc.’s debt from losses plunged to a record low following reports that the second-largest office-supplies retailer in the U.S. was in merger talks with OfficeMax Inc.
Five-year credit-default swaps on the Boca Raton, Florida-based company’s debt dropped 203 basis points to 301 basis points as of 8:38 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.
Default swaps, which typically fall as investor confidence improves and rise as it deteriorates, 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 companies have been discussing a potential stock swap that would create a single office-supply retailer to compete with Staples Inc., according to a person familiar with the matter, who asked not to be identified because the talks are private. The merger would create a company with almost $18 billion in revenue, compared with $25 billion in revenue last year for Staples.
The Wall Street Journal reported the talks yesterday on its website.