U.S. Credit Swaps Rise; Frontier Plans to Sell Bonds

A gauge of U.S. corporate credit risk rose as fewer Americans signed contracts to purchase previously owned homes last month and Italy’s Pier Luigi Bersani said there was no possibility for a broad coalition.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 2 basis points to a mid-price of 92.5 basis points at 4:41 p.m. in New York, according to prices compiled by Bloomberg. The measure is at the highest level since traders moved to a new version on March 20.

Italy’s Five Star Movement won’t back Democratic Party leader Bersani in a confidence vote, the party’s chief whips in parliament said, leaving no possibility of a broad coalition to resolve a deadlock caused by elections last month. Instability in Europe and a deepening of the sovereign-debt crisis may stoke investor concern that companies will have difficulty repaying their obligations.

“Anything where there’s issues in Europe or issues here on the home front, people are looking closely, and it’s going to have an effect on the markets,” Steve Chaires, a senior trader at independent fixed-income broker-dealer Carolina Capital Markets, said in a telephone interview from Chapel Hill, North Carolina. “People are just unsure.”

The index of pending home sales fell 0.4 percent to 104.8, the second-highest level since April 2010, after a revised 3.8 percent increase the prior month, the National Association of Realtors reported today in Washington. The median forecast in a Bloomberg survey called for a 0.3 percent drop.

New Index

The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. The contracts 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.

Series 20, the new iteration of the Markit CDX North American High Yield Index, traded at 434.3 basis points, 40 basis points higher than where Series 19 ended yesterday, according to data compiled by Bloomberg. New versions of Markit Group Ltd.’s indexes are created every six months, replacing companies if they no longer have appropriate credit grades, aren’t among the most actively traded borrowers or fail to meet other criteria.

Frontier Bonds

J.C. Penney Co., CenturyLink Inc. and PulteGroup Inc. were added to the new version of the high-yield index, while Sunoco Inc., CMS Energy Corp. and GenOn Energy Inc. were removed.

The new series should trade 32 basis points wider than yesterday’s close for the old benchmark, based on the cost of the individual credit swaps on companies in each index and the change in maturity on the new contracts, according to JPMorgan Chase & Co. analysts. Five-year contracts on Series 20 expire in June 2018, while the old index matures in December 2017.

Markit also removed industry-sector and rating-based weightings to better ensure liquidity within the index, spokeswoman Caroline Lumley said in an e-mail.

Frontier Communications Corp., a phone, Internet and television provider, may sell $750 million of debt in its first offering in more than seven months.

The Stamford, Connecticut-based company may issue the bonds due 2024 as soon as today, according to a person familiar with the transaction who asked not to be identified because terms aren’t set. Proceeds will be used to fund a tender for its March 2015 and April 2015 notes, the company said today in a filing.

Land Banking

The cost to protect Beazer Homes USA Inc.’s debt from default dropped as the Atlanta-based homebuilder signed a $150 million land banking deal with Blackstone Group LP’s GSO Capital Partners unit.

Five-year credit-default swaps on the Beazer Homes’s debt dropped 5.9 basis points to 543.5 basis points as of 4:01 p.m. in New York, Bloomberg prices show. That’s the biggest decline since March 15.

Funds managed by GSO Capital will purchase land selected by Beazer Homes, the companies said today in a statement. Beazer Homes will then have an option to acquire finished lots.

The average relative yield on speculative-grade, or junk-rated, debt added 5.5 basis points to 503 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE