The cost of insuring Alcatel-Lucent SA’s debt dropped below that of Nokia Oyj for the first time as investors speculate that debt at the French telecommunications company will be reduced after the companies merge.
Credit-default swaps on Alcatel fell 12 basis points to 99 basis points, the lowest since June 2007, according to data compiled by Bloomberg. Swaps on Nokia rose 1.5 basis point to 114 basis points. Contracts on Alcatel were more than 300 basis points higher than those on Nokia in October.
“There is likely to be debt repayment,” said Robert Jaeger, a credit analyst at Societe Generale SA. “The longer-term question is, is there going to be any deliverable debt into the Alcatel credit-default swaps.”
Nokia’s plan to buy Alcatel-Lucent will create the world’s biggest maker of equipment for mobile-phone networks in an all-stock transaction valued at 15.6 billion euros ($16.7 billion). While the combined company targets savings and lower interest costs, there’s a risk Nokia will struggle to turn around Alcatel, according to Matthias Hellstern, managing director at Moody’s Investors Service in Frankfurt.
Moody’s rates Nokia Ba2, two levels below investment-grade, and Standard & Poor’s ranks it an equivalent BB. Moody’s grades Alcatel four levels lower than that at B3.