Five-year credit default protection on ABB tightened dramatically last week after Standard & Poor's changed its outlook on the company to positive from negative but maintained its BB plus credit rating. The engineering giant traded 170 basis points tighter last week, closing at 200-220 on Wednesday from 360-390 on Monday, according to a London-based trader. Investment grade credits also tightened by around 10-15 bps on the back of this move.
ABB announced on Tuesday, as part of its strong third quarter results, that it has commitments from several banks to underwrite a USD2.5 billion equity issue for mid-December. It also has secured a new USD1 billion three-year revolving standby credit facility. In addition, the corporate will be launching a EUR650 million (USD759 million) bond in the next few weeks.
The corporate will be divesting its upstream oil and gas business and plans further divestitures, noted Ralf Kortuem, corporate credit analyst at S&P in Frankfurt. "These measures will solve ABB's liquidity problems," he added. The corporate's cash flow protection measures, however, need significant improvement before a ratings upgrade can be considered, he noted. Management is on the right-track to achieve this in the near future, he added.
Moody's Investors Service rates ABB B1 and has it on a negative outlook.