Credit-default swap spreads on Swedish and Swiss engineering concern ABB reversed course last week, tightening 250 basis points after a 300bps blowout the previous week. The news that Barclays Bank, Citigroup and Credit Suisse First Boston had agreed to fully underwrite its revised USD3 billion loan helped to comfort investors, who have been concerned over Moody's Investors Service recent downgrade of the company and its lack of access to the commercial paper market, traders said. Mid-market five-year protection on ABB was at 750bp early in the week and tightened to 375bp/500bp by Wednesday. Sellers of credit protection included bondholders and proprietary traders, according to credit derivatives professionals.
Last week, five-year spreads widened roughly 300bps to 700bps, with no offers, and the cost of one-year protection blew out to 750bps from 500bps. This was a reaction to Moody's downgrading ABB's long-term credit rating two notches to Baa2. Standard & Poor's has the company rated at single A with a negative outlook.
"Our perspective assumed support of the banks and the refinancing of the loan," said Wolfgang Draack, an analyst at Moody's who covers ABB. He said the rating agency remains focused on the company's sale of its structured finance business and its plans for issuing USD2 billion in debt to refinance a portion of the USD3 billion loan. "These are the real instruments to deliver and extend the maturity profile of ABB's debt," Draack said, adding that these would serve to stabilize the rating for the company.
