Credit-default swap spreads sprung out, and then back, after a U.S. court imposed a delay on ABB putting one of its units into bankruptcy. Swaps traded as wide as 665 basis points, before moving back to the 645bps level before the court ruling, according to London-based traders.
ABB had planned to put its Combustion Engineering unit into a prepack Chapter 11 bankruptcy and then sell some of its oil, gas and petrochemical units to pay down a portion of its USD8.3 billion debt. The 3rd U.S. Circuit Court of Appeals in Philadelphia, however, has halted the proposals while it waits for more evidence in relation to settling asbestos claims.
Traders said spreads rebounded because the market decided that this is just a legal glitch and is unlikely to alter the eventual outcome. "We don't think this going to have a major impact, and these kind of appeals are par for the course. It is the third time it has gone to appeal and we don't expect it to overturn the decision," noted one analyst.
Another analyst said this is unlikely to be the last hiccup. "This could go all the way to the supreme court," he added.
Moody's Investors Service rates the electrical engineering company B1 and Standard & Poor's puts it at BB plus. Both rating agencies have the corporate on negative outlook.
Five-Year Credit-Default Protection On ABB
