Five-year credit protection on The Walt Disney Co. and Comcast Corp. started to converge last Wednesday after the cable giant made a $66 billion offer for the Magic Kingdom. Credit-default swaps on Disney widened around five basis points to 57 basis points after the bid was publicized, while protection on Comcast tightened by around 3 basis points to trade at 67 basis points, according to a New York-based trader. Clients as diverse as corporates and hedge funds were actively trading the name, he says.
Trading on news of the acquisition formed one of the more predictable market trends last week. In other credits, spreads snap in violently at the beginning of the week. The tightening was viewed as a correction to the overall widening trend that had been prevalent since the beginning of the month. Traders say the market now appears to be range-bound.
Fitch Ratings rates Disney triple-B plus with a negative outlook while Comcast gets a triple-B rating with a stable outlook. Michael Weaver, managing director at Fitch in Chicago, says if the acquisition goes ahead the combined entity is likely to be rated triple-B plus. As no definitive agreement has been reached and there is no indication as to whether the possible acquisition would be accepted, it is too early to say whether it would hold a stable outlook. Disney does, however, continue to suffer from a poor operating environment as well as excess debt leverage, which the company needs to address, notes Weaver.