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Derivatives

Credit Spreads Narrow On Telecoms

Five-year credit protection on U.S. communications giants, including cable TV operator Comcast and Cox Communications, moved in by around 100 basis points last week, as the market experienced a renewed appetite for credit. Five-year default swaps on Comcast narrowed to 390 basis points last Wednesday, in from 515bps the previous week.

The heaviest flow has come as dealers, who are largely short a number of names in the industry, unwound their positions, noted one New York-based trader. Comcast is a high beta name which has been trading quite wide and after an earnings announcement showed all Street the company's performance was not as bad as expected, he added.

Richard Siderman, managing director at Standard & Poor's in New York, which has Comcast at BBB with a negative outlook, said the outlook on the firm is dependant on the success of its impending merger with AT&T Broadband. Immediately following the announcement of the intended merger, S&P placed Comcast on credit watch due to concerns on how successful the merger process will be and particularly as a result of concerns about AT&T's margins. Comcast was taken off this watch in late September, however, the agency continues to look to the firm to show a successful integration between the two businesses, he noted.

It should be possible to perceive how successful the process will be early next year and S&P will be looking for evidence that Comcast is on track to bring AT&T's margins up to its level, Siderman added.

Five-Year Credit Protection On Cox Commumications

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