The failure of Kmart Corp. has spurred Cardinal Health, the largest U.S. supplier of health care products to the retail industry--supplying pharmaceuticals to about 1,600 Kmart stores--to step up its interest in using credit derivatives for the first time. "These guys have looked at buying protection before, but the Kmart blowup has forced them to double their focus," according to a market official familiar with the company's plans. Richard Miller, cfo in Dublin, Ohio, did not return calls by press time. Lisa Kim, a company spokeswoman, was unable to provide a comment by press time.
According to recent company reports, Kmart represents 5% of Cardinal's USD40 billion annual revenue. A number of other companies are also considering buying credit protection against the background of mounting corporate failures. "Kmart started everyone looking. That's the problem with the corporates: they don't start thinking about protection until the fire is burning," one credit derivative marketer said.
Market officials believe Cardinal will pull the trigger on its first credit derivative deal by the end of the second quarter. The health care product concern is also a major supplier to other discount retailers, including Wal-Mart Stores. "Right now Cardinal says it's covered for credit loss under its sales agreement with Kmart. But this whole Kmart thing is putting out a lot of smoke and Cardinal is getting nervous about its credit exposure with other retail customers," another official noted.
