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Motorola Blows Out After Losses

15 Apr 2001

Credit default swap spreads on Motorola blew out last week after the company last week reported its first quarterly loss in some 15 years. Five-year protection on the telecom company traded at 465bps on Wednesday, while it had previously traded between 100-250bps, according to a trader in London. Traders in New York and London said volumes in the credit picked up as players who had bought protection at lower levels locked in profits and investors who had sold the default swap hedged further losses. The average notional value of the trades was USD10 million.

Bruce Hyman, director responsible for communication equipment companies at Standard & Poor's in New York, said "There is an ill wind blowing through the industry" and investors have credit concerns about tech companies. He added S&P had put Motorola on credit watch in February because of a profit warning the company issued and movements in the credit default swap market now are caused by incorrect rumors about Motorola's bonds facing liquidity problems.

S&P rates Motorola A and Moody's Investors Service rates it A2. Both have the credit on negative watch.

15 Apr 2001