Five-year credit protection on communications giant AOL Time Warner narrowed to 165 basis points last Monday, from 185bps the previous Wednesday, on news that its chairman, Steve Case has resigned. AOL was one of the only firms which tightened last week as there was a general widening of protection prices. In fact, swap spreads on the multi-media company also moved wider later in the week trading at 195bps Wednesday as general market weakness impacted most corporates, said a trader in New York. The default-swap market had experienced a huge rally the week before and a pullback was due, added the trader.
Widening was particularly marked on the high-beta credits. Some spreads, such as Cendant Corp., blew out seemingly without reason, trading at 165bps last Wednesday, compared with 150bps the week before, according to a trader. Tyco Telecommunications also experienced a sizable spread move widening to 380bps from 340bps over the same period.
Brendan Buckley, senior director at Fitch Ratings in New York, which ranks AOL at BBB plus with a negative outlook, said concern about AOL's debt levels as well as ongoing enquiries into the firm by the Securities and Exchange Commission are clouding AOL's outlook. AOL needs to reduce its debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio to less than three, currently the number is around 3.3. A successful initial public offering of Time Warner Cable, which is scheduled to go ahead in the second quarter, may aid this, as may other non-core asset sales, he noted.
Five-Year Protection On AOL Time Warner
