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Verizon Credit Swaps Reach Three-Year High on Vodafone Talks

Aug. 29 (Bloomberg) -- The cost to protect against losses on debt of Verizon Communications Inc. reached the highest level in three years as the owner of the largest U.S. mobile operator negotiates to buy a 45 percent stake in Verizon Wireless from partner Vodafone Group Plc.

Credit-default swaps on Verizon, which typically increase as investor confidence deteriorates, climbed 15 basis points to 80.5 as of 4:48 p.m. in New York, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. The contracts earlier touched 94.5 basis points, the highest since September 2010.

The carriers are in advanced discussions about a sale of the holding for about $130 billion, according to people with knowledge of the matter. New York-based Verizon is working with several banks to raise $10 billion from each, or enough to finance about $60 billion of the buyout, said two of the people, asking not to be identified because the talks are private. The deal would be the largest in more than a decade.

Credit swaps 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.

Debt of Verizon, which has $49.2 billion in obligations, declined. The company’s $1.75 billion of 2.45 percent unsecured notes due November 2022 fell 0.5 cent to 88.1 cents on the dollar to yield 4 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

A gauge of company credit risk in North America fell after the U.S. reported higher than expected economic growth.

GDP Rise

The Markit CDX North American Investment Grade Index, a credit-swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, declined 0.9 basis point to a mid-price of 82.5 basis points, according to prices compiled by Bloomberg.

Gross domestic product rose at a 2.5 percent annualized rate in the second quarter, up from an initial estimate of 1.7 percent, Commerce Department figures showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg projected a 2.2 percent gain.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries narrowed 0.7 basis point to 130.6 basis points, according to data compiled by Bloomberg. The measure for speculative-grade, or junk-rated, debt fell 1.3 to 587.4.

Investment-grade debt is rated Baa3 or higher at Moody’s Investors Service and at least BBB- at Standard & Poor’s.

To contact the reporter on this story: Matt Robinson in New York at

To contact the editor responsible for this story: Alan Goldstein at

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