Five-year credit-default protection on AOL Time Warner widened about 60 basis points in the wake of weak investor demand for its recent USD6 billion bond offering. Credit derivatives traders reported that New York-based AOL, the world's largest Internet and media company, was among the most heavily traded names last week as hedge funds and investment banks looked to buy protection on the bonds. Spreads on AOL widened to about 160bps last Wednesday from about 100bps on April 2 the day before the company's bond offering. "The bonds just haven't done that well. Spreads have widened on the bonds more than anyone thought they would," said one trader. "They've been really trading off and people are buying protection."
AOL said it plans to use the bond sale to pay off short-term debt and prepare for acquisitions. The company sold USD1 billion of 5.6% three-year notes, USD1 billion of 6.1% five-year notes, USD2 billion of 6.8% 10-year notes and USD2 billion of 7.7% 30-year notes. The deal was lead by Banc of America Securities, JPMorgan and Morgan Stanley. Moody's Investors Service rates AOL's long-term debt Baa1, whileFitch Ratings and Standard & Poor's rate it BBB plus. Elizabeth Henderson, a director in Fitch's corporate media and telecom group in New York, said despite the fall off in investor demand for AOL's issue, the company's decision to refinance short-term debt with long-term debt is a positive move. "The company's total debt didn't change," she added.
