Diageo Credit Risk Drops After Issue of $3.25 Billion of Bonds
A day after Diageo Plc (DGE) sold $3.25 billion of bonds with maturities as long as 30 years, the cost of insuring the debt of the world’s biggest distiller dropped to a six-month low.
Credit-default swaps on Diageo fell four basis points to 63, the lowest since Oct. 24. It’s the second-best performing contract in the Markit iTraxx Europe Index of swaps linked to 125 investment-grade companies, which was unchanged at 106.5 basis points at 3 p.m. in London.
The deal yesterday from Diageo, whose brands include Johnnie Walker Scotch and Crown Royal Canadian whisky, was its first debt offering in almost a year and the company said funds will be used to repay commercial paper and maturing bonds. The London-based company is ranked A- by Standard & Poor’s and Fitch Ratings and an equivalent A3 by Moody’s Investors Service.
“Its a confirmation of their defensive characteristics and reflects the strong investor appetite for core and quality single A bonds,” said Norbert Ling, an analyst at BNP Paribas SA in London. “Credit markets reward defensive companies. Not every company can sell 30-year bonds.”
A basis point on a credit-default swap protecting 10 million euros ($13 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
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