As time goes on and BHP Billiton's (NYSE:BHP) bid for Potash Corp. (NYSE:POT) increasingly looks like it will be successful, it has helped push down the cost of credit defaults swaps for Potash.
Measured from September 23, the cost for credit default swaps for Potash have dropped 38 basis points to 111 basis points as of Thursday.
The bid by BHP is considered friendly to Potash bondholders, and that is what is believed to be the factor driving CDS prices down for the giant fertilizer company.
A major factor is the proposed acquisition would be financed by cash from BHP, which is as safe as you can get.
If BHP does get Potash, they would of course assume all their debt at a better credit rating. Long-term debt of BHP is rated A+ by Standard & Poor’s, while Potash is rated A-. That's two levels below the rating BHP, although both are investment grade.
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