The cost of credit-default protection on Verizon Global Funding, a funding arm of Verizon Communications, fell late Wednesday after the company reported better-than-expected second-quarter earnings. But later in the week protection widened slightly again as investors continued to express fear of future credit events in the telecom sector. Mid-market five-year default swap spreads tightened to 340-345 basis points by mid Thursday in New York from 430bps before the earnings were announced on Wednesday, according to traders. By Friday, five-year mid-market protection had widened slightly to 355bps.
Traders said the company's earnings, although they revealed a loss, showed signs of a turnaround and that Sprint Corp.'s securing of a USD1.5 billion credit line earlier in the week showed that banks are still willing to lend to telecom companies. Another trader said, however, that there is general negative sentiment in the telecom sector, reflected by articles in Forbes and other publications last week questioning the future viability of incumbent telecom companies.
Even though it reported a USD2 billion loss and adjusted future earnings forecasts slightly downward, Verizon's results seem to have assuaged investors, according to Patricia Lee, an analyst at independent research firm CreditSights in New York. "It seems like it was a good quarter given the current market conditions," she said.
