Five-year default protection on media giant AOL Time Warner tightened more than 60 basis points last week after the company announced it had secured a USD10 billion bank loan facility on Monday, easing fears of a liquidity crunch. Mid-market five-year credit-default swaps tightened from 480 basis points over LIBOR at the start of the week to 415bps by late Wednesday in New York. Five-year protection had been as wide as 560bps at the end of the previous week. "A lot of people were worried that something would prevent or delay the closure of the bank loan, so when they signed it there was a relief," said one trader in New York, referring to some of the recent accounting scandals among U.S. companies. He added the cost of protection had been pushed up in recent weeks before the loan was finalized, perhaps even by banks in the syndicate. Despite the short-term gyrations in the default-swap market, AOL's credit rating remains stable, according to Andrew Watt, a director and AOL analyst at Standard & Poor's in New York. "Our rating anticipated this financing; our view was that this would be put in place, but the market had some attention on external events that had no bearing on the credit profile," he noted.
Moody's Investors Service rates the media giant Baa1 and S&P rates it BBB plus.
