Five-year credit default swap spreads on MCI widened last week to 95 basis points from about 75bps the previous week as the bidding war for the Ashburn, Va.-based telco took a new turn. Last week, Qwest Communications International revised its offer to purchase MCI after its earlier bid was rejected in favor of Verizon Communications. Qwest's re-emergence as a competitor led market players to snap up protection, said a trader.
Traders were buying protection in reaction to the Qwest bid because it is a less robust company than Verizon, which trades around 30bps whereas Qwest stands at around 185bps. "MCI's spread will gravitate toward one or the other," he said, adding the current spread movements reflect market players' views on who will get MCI.
The widening comes after MCI's spread underwent sever tightening, another trader noted. He explained the announcement of SBC Communications' acquisition of AT&T in late January led market players to suspect MCI was next in line for an acquisition, sending its spread tighter. But it was Verizon's offer for MCI in mid-February that drew it in to the mid-50s.