U.S. Corporate Credit Swaps Fall; Odebrecht Postpones Bond Deal

A gauge of U.S. corporate credit risk declined by the most in five months as retail sales and employment reports indicated a strengthening economy. Odebrecht SA postponed an offering of benchmark bonds.

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, decreased 5.6 basis points to a mid-price of 81.9 basis points at 4:22 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest drop since the index fell 9.5 basis points in intraday trading Jan. 2.

Investors are looking for signs of improvement in the world’s biggest economy to help determine when the Federal Reserve will begin to scale down its $85 billion monthly bond purchases. Fed Chairman Ben S. Bernanke will have a chance to adjust the central bank’s message during a press conference on June 19 after the Federal Open Market Committee concludes a two-day meeting and releases a policy statement.

“We may point to decent economic numbers today for the tightening,” Marc Pinto, head of corporate bond strategy at Susquehanna International Group LLP in New York, said in an e-mail. “Until there is clear consensus on the extent and impact of future central bank actions, we will be on a bit of a roller coaster ride.”

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

Retail Sales

Retail sales rose 0.6 percent last month after increasing 0.1 percent in April, Commerce Department figures showed today in Washington. Applications for unemployment benefits dropped by 12,000 to 334,000 in the week ended June 8 from 346,000 the prior period, the Labor Department reported.

The data offset a forecast from the World Bank that the global economy will expand 2.2 percent this year, less than a January projection for 2.4 percent growth and slower than last year’s 2.3 percent.

The risk premium on the Markit CDX North American High Yield Index declined 28 basis points to 406.3 basis points, Bloomberg prices show.

Odebrecht, the Salvador, Brazil-based construction company, delayed a bond offering denominated in dollars because of market conditions, according to a person with knowledge of the deal who asked not to be identified because the terms are private. The company, through its Odebrecht Offshore Drilling Finance Ltd. unit, proposed $1.9 billion of secured bonds due October 2022 that were preliminarily rated BBB by Standard & Poor’s, according to a June 11 report.

Belo Swaps

The cost to protect against losses on the debt of Belo Corp. dropped the most since October 2011 after Gannett Co. agreed to buy the television station operator for about $1.5 billion.

Five-year credit swaps tied to Belo debt dropped 66.5 basis points to a mid-price of 161.5 basis points at 3:44 p.m., according to data provider CMA, which is owned by McGraw Hill Financial and compiles prices quoted by dealers in the privately negotiated market. That’s the biggest daily drop since October 27, 2011.

Contracts linked to Gannett debt dropped 40.5 basis points to a mid-price of 206 basis points, CMA data show.

‘Financial Flexibility’

Gannett, the publisher of USA Today, will pay $13.75 per Belo share in cash and assume $715 million in debt, according to a statement today. The acquisition will make Gannett the fourth-largest owner of major network affiliates, almost doubling the number of stations to 43 from 23.

“Given our balance sheet strength and increased cash flows from Belo’s broadcast stations, we expect to promptly pay down the debt associated with this transaction while maintaining significant financial flexibility as well as our conservative financial profile going forward,” Gannett Chief Executive Officer Gracia Martore said today on a conference call to discuss the acquisition.

The average relative yield on speculative-grade, or junk-rated, debt widened 13.2 basis points to 560.4 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at S&P.

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