Vulcan, Martin Marietta Credit Swaps Jump on House Rules Change
The cost to protect the debt of Vulcan Materials Co. and Martin Marietta Materials Inc. jumped after Republicans in the U.S. House of Representatives changed the way transportation funding may be allocated, potentially denting revenue for the companies.
Credit-default swaps on Birmingham, Alabama-based Vulcan jumped 22.8 basis points to 281.1 basis points, according to data provider CMA. Contracts on Raleigh, North Carolina-based Martin Marietta increased 8.1 basis points to 146.2.
The Republicans, who gained control of the House after the November election, voted yesterday evening to allow the House Appropriations Committee to restrain spending from the Highway Trust Fund, which was set at $43 billion for fiscal 2011. Vulcan and Martin Marietta make construction aggregates for highways.
“It will create a lot of uncertainty and potentially affect demand patterns for companies like Vulcan and Martin Marietta,” said Keith Johnson, an analyst with Morgan Keegan & Co. “The rest of the construction markets are still at very depressed levels. Unresolved issues by Congress creating that uncertainty become a bigger problem. You don’t have another market to really fall back on.”
Highway and infrastructure construction make up about half of the companies’ revenue, Johnson said from Memphis, Tennessee. He rates Vulcan’s shares “market perform” and Martin Marietta’s “outperform.”
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More than 20 transportation organizations and hundreds of companies attempted to stop the rules change because it may hinder the ability of state governments to budget transportation projects, and discourage participation by private investors, said Brian Turmail, a spokesman for Associated General Contractors of America. Republicans’ pledge to reduce spending to 2008 levels would mean a cut of $4 billion, he said.
The cost of protecting U.S. corporate debt from default was little changed amid conflicting economic signals. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 0.9 basis point to a mid-price of 83.1 basis points as of 5:00 p.m. in New York, according to index administrator Markit Group Ltd.
The Fed said in minutes released yesterday that it isn’t ready to scale back plans to buy $600 billion in Treasuries. Today, the Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the economy, rose to 57.1, higher than forecast, from 55 in November. A reading greater than 50 signifies growth.
Companies also boosted payrolls in December by the most since records began in 2001, ADP Employer Services said in a separate report. Employment increased by 297,000, almost three times the 100,000 median estimate of 33 economists surveyed by Bloomberg.
The credit-swaps index, which typically rises as investor confidence deteriorates and falls as it improves, is down from 99.4 basis points on Nov. 30.
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.
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