Credit-default protection on Tyco International widened 150 basis points Wednesday as skepticism continued to mount over the company's accounting practices and plans to split the company into four parts. Credit spreads on Tyco widened to about 450bps Wednesday from 275bps a week earlier as a host of market players, from hedge funds to high-net-worth individuals, scrambled to buy protection. "Tyco is a very widely owned name. So many people got burned on Enron that they're starting to panic over Tyco... There is not a huge threshold for pain since Enron," said one credit-default swap trader in New York. He added that there is a strong correlation between the owners of Tyco and the owners of Enron. "If you run the numbers, you'll find that everyone who owns Tyco owned Enron," another trader said.
By Wednesday shares of Tyco dropped to USD34.85 from USD48.20 Monday, the stock's 52-week high/low is USD63.21/USD27.50. The situation grew worse after a report surfaced that some of the company's management had disposed of USD100 million of Tyco stock in the company's last fiscal year. Cynthia Werneth, an analyst at Standard & Poor's in New York, said the pending break up of Tyco will allow its bond holders to be paid in full through tender offers and additional refinancing of existing debt. The move will help to substantially reduce debt over the long term. She predicted the company's credit rating will remain strong.
Five-Year Credit Protection On Tyco
Source: JPMorgan
