Nokia Credit-Default Swaps Decline by Record on Microsoft Deal
The cost of insuring against losses on Nokia Oyj (NOK1V) debt fell by a record after Microsoft Corp. (MSFT) agreed to buy its handset business and license its patents for 5.44 billion euros ($7.2 billion).
Credit-default swaps on Nokia dropped 330 basis points to 199, according to data provider CMA at 10 a.m. in London. The Espoo, Finland-based company’s 6.75 percent bonds due February 2019 jumped 7.5 cents on the euro to 113.3 cents, the highest since June 2011, Bloomberg data show.
Nokia is exiting the mobile-phone business it once dominated after struggling to compete with Apple Inc.’s iPhone and Google Inc.’s Android platform. The deal -- the largest for a wireless device maker after Google’s purchase of Motorola’s handset unit completed in May 2012 -- will let the company focus on its network equipment business, which is facing intensifying competition from Sweden’s Ericsson AB and China’s Huawei Technologies Co. and ZTE Corp. (000063)
“Whilst the loss of the handset business marks the end of an era for the company, it could no longer continue to develop new phones as its market share plunged,” said Aengus McMahon, a London-based analyst at ING Groep NV. “This move is positive for Nokia spreads and we would expect to see some positive momentum in its ratings as the transaction moves towards completion.”
Nokia is rated B1 by Moody’s Investors Service, four levels below investment grade, and the New York-based ratings firm has a negative outlook on the company’s debt. Nokia’s plan to regain a high-grade ranking will be plausible after the Microsoft deal is completed, according to report from Mizuho International Plc today.
The 62 percent decline in the cost of Nokia’s swaps is the most since CMA began collecting data in 2007 and the contracts are the lowest since June 2011. They’re down from a peak of more than 1,200 basis points in July 2012.
Swaps on Microsoft were unchanged at 33 basis points, CMA data show. The world’s largest software maker is moving into hardware as it also tries to remain competitive. Its 550 million euros of 2.625 percent bonds due May 2033 fell 0.26 cents on the euro to 91.08 cents, the lowest since they were issued in April.
A basis point on a credit-default swap protecting 10 million euros 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 and an increase signals deterioration in perceptions of credit quality.
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