Credit default swap spreads widened last week on several technology companies, some of which, including Solectron and Corning, had outstanding convertible bonds. As share prices have fallen for these companies, convertibles have become cheaper, said Tanya Ferencko, principal, credit derivatives trading at Morgan Stanley in New York. If a bond is trading at a wider spread, that implies that the default swap spread should be wider as well.
Five- year protection on electronics manufacturer Solectron was quoted last week in the range of 700 basis points, while early last month it was quoted in the range of 400bps. Solectron announced in the middle of last month that it met earnings expectations for the second quarter but was cutting some 8,200 jobs and planning to take a USD300-400 million restructuring charge in the third quarter. Demand for its products fell this quarter, the company's chairman conceded in a press release, in part because of changing overall economic conditions. The name did not trade particularly actively in the credit default swap market last week, noted Ferencko, but there was interest on the bid side.
Bids on five-year Corning protection rose to about 240bps from about 200bps. The optical communications technology company last month announced that it was slashing its expectations for 2001 earnings by about 10%.
