Tokyo Electric Power Co.’s credit- default swaps plunged to the lowest in a year after Japan’s government agreed to a 1 trillion yen ($12.5 billion) bailout for the owner of the stricken Fukushima nuclear plant.

The cost to insure the debt sold by the utility against non-payment declined 210 basis points in the past week to 436 basis points on May 14, the lowest since May 2011, according to data provider CMA. The contracts of Osaka, Japan-based Kansai Electric Power Co. climbed 34 to 288 in the period, double the increase in nation’s benchmark for bond risk and the gauge for North American companies, the data show.

The capital injection approved last week, Japan’s largest since the rescue of the banking industry in the 1990s, helped allay investor concerns that the cost of paying for the world’s worst nuclear disaster since Chernobyl in 1986 will bankrupt the utility known as Tepco. Moody’s Investors Service said earlier this week the infusion is a “positive first step in removing uncertainty for the industry.”……

The extra yield investors demand to own Tepco’s 1.795 percent notes due March 2017 fell 22 basis points in the past week to 534 on May 14, the lowest since October, according to data compiled by Bloomberg. The spread for Kansai Electric’s similar maturity 3.175 percent bonds widened to a record 46.8 basis points, the data show…….

The credit-default swaps of Kyushu Electric Power Co. jumped 35 basis points last week to 267 on May 11, while contracts of Chubu Electric Power Co. rose 33 to 214, according to CME Group Inc.’s CMA. No pricing data was available on the swaps of nuclear reactor operators Hokkaido Electric Power Co., Chugoku Electric Power Co. and Hokuriku Electric Power Co…….

Japan’s benchmark 10-year bond yield rose to 0.85 percent yesterday, after falling to 0.835 percent earlier in the day, the lowest level since October 2010. The notes yielded 94 basis points less than similar maturity U.S. Treasuries, compared with 201 basis points a year earlier.

Five-year credit-default swaps that protect Japan’s debt from nonpayment were at 104.3 basis points May 14, up from a seven-month low of 90.1 on March 27, according to CMA. The Markit iTraxx Japan index rose 9 basis points to 208, while the gauge for North American investment-grade companies climbed 6 to 115, according to the data…….

The spread on utility bonds over Japan’s sovereign debt has climbed one basis point this year to 44 basis points on May 14, according to an index compiled by Bank of America Merrill Lynch. The index excluded Tepco’s bonds on June 30 after Moody’s and Standard & Poor’s both cut their ratings on the utility to junk. That compares with a 4-point decline in the extra yield for Japanese company notes to 46 during the same period, and a 56- point drop in the gap for global corporate debt to 211, separate indexes show.

Japan is without atomic power for the first time since May 1970, after the country shut its last operating reactor earlier this month. Its utilities have been forced to turn to coal, oil and gas-fired plants to keep factories, offices and households supplied with electricity. The country’s nuclear reactors provided 30 percent of its electricity prior to March 11, 2011.

Well according to Bloomberg,

Chesapeake’s 6.775 percent notes maturing in March 2019 fell 5.5 cents on the dollar to 93 cents, lifting the yield to 8.125 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Credit- default swaps on Chesapeake climbed 3.35 percentage points to 9.25 percent upfront as of about 4 p.m. in New York, according to CMA, which is owned by CME Group Inc. The cost of the company’s contracts means buyers of protection would pay $925,000 initially and $500,000 annually to protect $10 million of debt from default for five years.

The French-born trader [the so-called 'London Whale' - Bruno Michel Iksil] commutes to London each week from Paris and works from home most Fridays, the Journal article said, citing a person who worked with him.

The trader may have built a $100 billion position in contracts on Series 9 (IBOXUG09) of the Markit CDX North America Investment Grade Index, according to the people, who said they based their estimates on the trades and price movements they witnessed as well as their understanding of the size and structure of the markets.

According to Bloomberg,

Credit-default swaps insuring JPMorgan’s debt climbed 17 basis points to 124, the highest since Feb. 16……Bonds of JPMorgan declined the most in six months, widening the gap in yield between the lender’s $6 billion of undated 7.9 percent junior subordinated notes and the 0.875 percent Treasury due 2018 by 16 basis points to 392.2 basis points, according to Bloomberg Bond Trader prices at 10:10 a.m. in London. The price of the note, callable in 2018, fell 2.2 cents on the dollar to 107.84 cents, pushing up the yield to 6.3 percent.

Since then, it appears JP Morgan’s CDS has increased further to the 130 bps range. While higher than before, the bank’s relative level is still lower than other competitors such as Goldman Sachs, Bank of American and Morgan Stanley at 300 bps, 290 bps and 400 bps, respectively. Of the major American banks, Wells Fargo maintains one of the lowest CDS prices at around 100 bps.

security-based swap dealer /siˈkyo͝oritēbāsed swäpˈdēlər/
______________________________________________________________________________________
Noun: A systemically important bank that trade a large amount of a variety of swap financial transactions. For credit default swaps, the large amount is $3 billion, for other security-based swaps, the de minimis amount is $150 million.
______________________________________________________________________________________
Synonyms: noun. JP Morgan Chase, Goldman Sachs, Bank of America, Barclays Bank, Deutsche Bank, Morgan Stanley
______________________________________________________________________________________
More info >>
- Securities & Exchange Commission. Security-based swap dealer.
- Commodity Futures Trading Commission. Security-based swap dealer.
- Risk.net. Security-based swap dealer.

According to Reuters,

The action sparked a 35 basis point tightening in Ford’s five-year credit default swap spreads to 269.5 basis points, as well as a 22.5 basis point narrowing of Ford Motor Credit FMCR.UL CDS spreads to 216.5 basis points.

The tightening was even more dramatic in its cash bonds, with Ford Motor Credit 6.625% 2017s trading 50 basis points tighter at 296 basis points.

But that’s just the beginning, according to some credit strategists, who view the automaker’s spreads as trading unjustifiably wider than companies in other cyclical sectors such as home construction that are showing less impressive growth.

“You could argue that Ford was already trading too wide versus other cyclicals before this news,” said Vince Foley, auto credit analyst at Barclays Capital.

“We believe that Ford Motor Co five-year CDS should continue to compress with low-BBB industrials, such as Whirlpool, whose CDS trades around 245/255 basis points compared with Ford’s 270/280 basis points range on its five-year CDS.”

Ford Motor also trades wider to several homebuilders such as D.R. Horton at 195/205 basis points and Toll Brothers at 160/170 basis points, said Foley.

That “doesn’t make sense when you consider that Ford is sitting on more than $20 billion of automotive cash and the auto industry is in much better shape fundamentally than the housing market.”

On the other hand, Nokia was downgraded by the same rating agency to junk for the first time after officially losing its title of world’s largest handset seller to Samsung this year after 14 years on top.

According to Bloomberg,

The cost of insuring against default on Nokia’s debt surged to a record. Nokia is burning cash 14 months after linking up with Microsoft Corp. (MSFT) (MSFT) to make phones that run on the Windows operating system. The company this month reported a first- quarter operating loss for its handset unit and said the margins would be similar or worse in the current period……

Credit-default swaps on Nokia bonds rose 55 basis points to 590 basis points, according to data compiled by Bloomberg. 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.

In 2002, Fitch rated Nokia’s debt A+, the fifth-highest investment grade. Standard & Poor’s and Moody’s currently rank the debt one step above junk.

The shares fell 3 percent to 2.63 euros at 2:10 p.m. in Helsinki, the lowest since December 1996.

Nokia that took in almost half the global revenue from smartphones in 2007 now claims only 10 percent of the $219 billion per year market, Bloomberg data show. Nokia will continue to increase its focus on lowering the company’s cost structure, improving cash flow and maintaining a strong financial position, Chief Financial Officer Timo Ihamuotila said in a statement.

The company had about 4.9 billion euros in net cash at the end of the first quarter.

“In terms of the cash, Nokia has announced quite significant restructuring charges that will probably be front- end loaded and they will probably start paying them down quite fast,” Fenton said in an interview. “The cash balance could also be depleted by continuing negative operating cash flow.”

The complex structured company whose finance arm, ERC Ireland, had its own CDS auction held last month, is reportedly the one of the biggest corporate bankruptcies in Europe this year.

According to Moody’s and the Independent,

The insolvency of Eircom is the first time for any telecoms “incumbent” anywhere in Europe.

Moody’s said it’s proof telecoms companies can no longer be considered to have systemic importance, noting that the Government made no move to bail out or nationalise the troubled company.

“Unlike banks, telecoms do not have systemic importance and are less likely to be bailed out or nationalised in times of stress,” the report notes.

The Eircom examinership is the biggest corporate insolvency anywhere in Europe this year.

Eircom’s bond holders face a total wipe out under a plan to write off €1.7bn of Eircom’s nearly €4bn of debt.

Moody’s only cut its credit rating for Eircom to the lowest rank above default last year, but the report suggests investors did get some warning from the agency.

Moody’s lowered Eircom’s credit rating eight times before the business became insolvent, the report points out. The rating dropped each time new debt was piled on to the business, Moody’s said.

Separately, the Irish Times reported that an unnamed buyer for the bankrupt Irish telecom was rejected this week. Blackstone has reportedly been interested in the past as mentioned in a nice Euromoney report outlining eircom’s situation.

ircom’s debts are, indeed, eye watering: it has €2.5 billion senior debt outstanding in the form of bullet term loans, a €650 million senior secured term loan A, a €150 million senior secured revolving credit facility, a €350 million FRN due in 2016, a €350 million second lien term loan D and €425 million PIK notes due in 2017.
When it was floated in 1999, it owed less than €500 million. The firm is understood to have estimated EBITDA of €550 million for the year to June 2012, down from €699 million for 2011, but in February it announced there had been a sharp deterioration in performance in the last six months of last year – it missed the deadline to produce financial results for the first quarter in October 2011.
By December 31, the amount of cash on hand was €326 million, so simple mathematics meant that a default was inevitable.
And so it proved, with a mid-February missed coupon payment on the €350 million FRN, which triggered a failure to pay credit event on CDS written against it. Eircom had narrowly avoided a covenant breach on its senior debt in July by negotiating a last-minute waiver with senior lenders.
While the examinership itself offers Eircom bankruptcy protection, the restructuring of its debt is already a done deal after its first and second lien lenders agreed terms last month. But this was only after a fractious year of horse trading and a failed attempt to find a buyer.
The process also threw up an audacious 11th hour attempt by Blackstone GSO, one of the largest lenders to the firm, to impose its own restructuring plan on to the company.
Eircom’s huge debt burden is a legacy of the pre-crisis leveraged buyout boom, when now defunct Babcock & Brown Capital bought the telecoms firm in a 2006 deal overwhelmingly financed in the debt markets through Barclays Capital, Credit Suisse, Dresdner Bank and JPMorgan.
Eircom ran into trouble quickly thereafter and was recapitalized in July 2007 with a €3.5 billion loan underwritten by Deutsche Bank and JPMorgan. Singapore Technologies Telemedia (STT) bought out the struggling Australian owner in late 2009, paying €140 million for 65% of the company.
Senior lenders met to discuss the situation in early 2011. The second lien lenders, which are understood to include Park Square Capital and AXA Investment Managers, attempted to join the negotiating group but were rejected.
However, progress was glacial and the company only recognized the co-ordinating committee, comprised of first lien lenders Alcentra, Avoca Capital, Deutsche Bank, GSO Capital Partners, Harbourmaster Capital and SMBC, on July 7. At this stage, JPMorgan bowed out as adviser to Eircom, leaving Gleacher Shacklock as sole adviser.
In August, majority shareholder STT proposed a €300 million cash injection, with the senior lenders taking a 7% to 8% haircut in return for 20% of the company. This offer sat on the table until December 12 – during which time the eurozone sovereign debt crisis sharply intensified – when STT improved upon it, offering lenders 25% of the firm but stipulating that STT would be reimbursed €100 million if Ireland left the eurozone.
When the first lien lenders again rejected the plan, STT’s directors resigned from the board and the firm pulled out on December 23.
“The first lien co-ordinating committee was very slow to get its act together,” grumbles one lender. “The first liens should have grabbed the €300 million much more firmly than they did in August – management was supportive of the STT offer and a deal could have been done before STT got cold feet.”
Given that it had paid only €140 million for Babcock & Brown Capital’s stake – and given the state that Eircom is in – it was hardly surprising that Singaporean firm walked away.
At this stage, Eircom brought restructuring specialists Alvarez & Marsal on side to advise on the situation.
The first lien lenders had tabled a restructuring plan of their own in November – as had the second liens. The first liens were proposing they take 100% control of the firm in return for write-downs of up to 10% and a maturity extension. Second lien lenders – owed €350 million – were to receive just €25 million. The second lien lenders offered a 71% write-down – €250 million – in return for a 5% stake in the firm. Not surprisingly, Eircom decided to see if it could find a new buyer, and engaged Morgan Stanley in early January to flush one out by March. This process failed – not helped by the fact that Eircom had announced it would be reforecasting its numbers 10% to 15% lower.
The firm then began putting plans in place to apply for examinership to implement the first lien’s restructuring proposal. However, the negotiations were thrown wide open when Blackstone GSO, one of the largest first lien lenders, tabled an alternative proposal at a meeting in London on March 14.
“It became apparent very early on that GSO would be tabling an alternative plan as they wanted to equitize more of their debt and take a classic private equity approach to the problem,” says one observer. “But it was a surprise in terms of the timing that they left it so late.”
GSO’s 11th-hour proposal involved injecting €150 million fresh equity into the firm in return for improved seniority of its existing debt. It also offered improved terms – €35 million rather than €25 million – for the second lien lenders. This was a tactical move reflecting the interconnectedness between the two.
Forty per cent of second lien holders also have meaningful holdings in the first lien – and that 40% accounts for a full 14% of total first lien exposure. By sweetening the deal for the second lien, GSO was therefore hoping to win a large chunk of the first lien round as well. However, the motivation behind the move was clear.
Already one of the largest lenders to Eircom, Blackstone GSO bought Harbourmaster Capital in June 2011 – another big lender to the firm. One source reckons GSO’s exposure could now be as high as €500 million. GSO is understood to have bought into the loans at 80c to 90c and Harbourmaster’s exposure will be at par as it was in the original 2006 deal.
“GSO was trying to protect its own position and to step up part of its debt to super senior. People were reluctant to support this,” says one lender. “It didn’t get much support as it was seen as coercive – lenders would be forced to put in new money to the company if they wanted to maintain their seniority.” Blackstone declined to comment.
The bid was, however, good news for the second lien lenders as it forced the first liens to up their offer to €35 million to match it. This is the baked-in restructuring that the examinership process will now facilitate. With €1.8 billion being wiped from Eircom’s gross debt by the senior lenders taking a 15% haircut in return for control of the company, the second lien lenders will take a 90% haircut and the PIK noteholders will be wiped out.
One advantage of an Irish examinership as opposed to a UK scheme of arrangement is that it has a 50% voting threshold rather than the latter’s 75%. Some lenders – most notably the second liens as their consent would have been needed – had lobbied for a UK scheme of arrangement, not least because an examinership at this scale is untested. The first liens, therefore, went on a charm offensive, discussing the process with small groups of lenders at a time.
All lenders agreed to the process, however, not least because this is essentially a pre-pack restructuring that is already in place – the examinership is just the implementation mechanism. The restructuring plan has the support of more than 50% of lenders, so any holdouts will simply be crammed down.
When Eircom emerges from examinership and the restructuring is implemented, it still has a mountain to climb. It faces very strong competition from UPC in fixed line, and Vodafone and O2 in mobile. It has no chief executive, Paul Donovan having announced he is to step down at the end of this year, and its interim CFO Mark Wilson – who was appointed in January 2011 – has no permanent replacement.
The restructuring relieves it of €1.8 billion debt – but it still owes €2.3 billion. And it has seen subordinated lenders all but wiped out after a protracted and fruitless series of negotiations. The first lien lenders have ended up with a 15% haircut but have gained control over the company.
But the deteriorating macroeconomic environment since last summer has weighed heavily on the firm and turning it around from here will be extremely difficult – particularly without clear leadership. “Although most of the cash from the STT offer would have gone to senior lenders, there would have been a controlling shareholder and a sponsor in place to take responsibility rather than the firm being run but 300 lenders, which will be the case now,” says one.
Others agree that the situation could have been better handled. “The first lien committee were calling the shots but they simply overplayed their hand.”

The company which Raytheon sold to Goldman Sachs Capital Partners & Onex in a $3.3 billion buyout in 2007 has had a number of financial problems ever since the deal and the $2 billion debt burden it took on around the height of the market. Demand for smaller business jets dropped during the recession and Hawker has struggled to keep afloat to avoid bankruptcy and its future still does not look good as indicated by its 8-K filing.

From Aviation Industry News,

The filing goes on to report that as of Dec. 31, 2011, Hawker Beechcraft had $2.334 billion in total indebtedness. In addition, it says the company has issued letters of credit totaling $51.2 million of the $75 million available under its synthetic letter of credit facility. Added to that is an additional $124.5 million senior tranche term loan to fund ongoing operations.

Should Hawker Beechcraft be unable to make payments or refinance its debt, or obtain new financing under the circumstances, the filing lists the following options:

Ÿ “sales of assets”

Ÿ “sales of equity”

Ÿ “negotiations with our lenders to restructure the applicable debt and/or”

Ÿ “seeking protection under Chapter 11 of the U.S. Bankruptcy Code.”

The 10-K points out that despite the current indebtedness level, Hawker Beechcraft and its subsidiaries may still be able to incur substantially more debt, but adds that this “could exacerbate the risk associated with our substantial indebtedness.” The filing also makes it clear that, “If new debt is added to our subsidiaries’ current debt levels, the related risks that we now face could intensify.”

Credit-default swaps on the Kansas City, Missouri-based company jumped 68 basis points to 508 basis points at 4:08 p.m. in New York, according to broker Phoenix Partners Group. The contracts jumped the most since May 2010, according to prices compiled by Bloomberg.

The swaps surged after the biggest U.S. tax preparer reported yesterday that diluted earnings per share from continuing operations for the fiscal year ending April 30 may be $1.15 at most, compared with the average estimate of $1.42 from eight analysts surveyed by Bloomberg. The company’s Option One Mortgage Corp., now known as Sand Canyon Corp., “received new claims for alleged breaches of representations and warranties in the principal amount of $543 million,” since the fiscal third quarter ended Jan. 31, the company said in a filing.

These claims were up from $35 million last quarter and compared with the cumulative $826 million before this quarter, according to a research note by Hale Holden and Danish Agboatwala, debt analysts at Barclays Plc in New York.

The swaps, which typically rise as investor confidence deteriorates, had eased from a high of 598 basis points in December as the market perceived declining risk of put-backs worsening. 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.

Beef is 41% of Tyson’s business so naturally any shift in the market would have an effect on the company as well.