JetBlue Airways five-year credit-default swaps tightened by 35 basis points last week, moved by broader sector news that US Airways has launched an USD8.67 billion hostile takeover bid for Delta Air Lines, which is still sitting in bankruptcy.
The price of protection on the name in three-, four- and five-year durations tightened as investors buzzed with talk that a deal could kick start a whirl of mergers and acquisitions in the sector. Such a whirl would be viewed as an overall credit positive for stronger names like JetBlue. Investors were placing bets across the sector in both the debt and equity, traders reported, with JetBlue enjoying the most investor confidence in its credit.
Bid-ask spreads were widest in two-year protection at 45 bps. They were at 20 bps for three-year protection and 26 bps for four-year, showing investors were divided on whether JetBlue would benefit from the sector M&A. "US Airways bidding for Delta reinforces the idea that there's a lot of buyout potential out there which is good for the sector overall,'' said one credit trader.
"The move toward mega-carriers is a positive for bondholders because you can improve the cost structure," added another trader.
Following the market-moving news about Delta's bid, JetBlue's ceo David Neeleman said the budget airline had no plans to merge with another carrier, but added that one less competitor should benefit his company if a Delta-U.S marriage should happen.
Delta's credit default swaps expired when the company filed for bankruptcy while swaps on U.S. Airways are very illiquid.
