Showing posts with label Credit Default Swaps. Show all posts
Showing posts with label Credit Default Swaps. Show all posts

Friday, October 29, 2010

Halliburton’s (NYSE:HAL) Shares Hammered After BP (NYSE:BP) Cement Report

There is no way to get around the potentially devastating report from the National Commission on the BP Deepwater Horizon Oil Spill, where Halliburton (NYSE:HAL) had the conclusion drawn that the cement they recommended using was unstable.

An independent investigation from Chevron (NYSE:CVX) performed on behalf of the commission reached the same conclusion, as well as did an internal investigation from BP.

Credit-default swaps almost immediately rose in price for Halliburton right after the news, and their stock got hammered, and will continue to be under pressure because of the unknown liabilities associated with the findings.

Whatever it is, in the short term Halliburton is in trouble, and that isn't going to change anytime soon.

The share price of Halliburton plunged to $31.68 at close, losing $2.74, or 7.96 percent, and continued to drop after hours.

Friday, October 8, 2010

BHP (NYSE:BHP) Bid Driving Potash (NYSE:POT) Credit Default Swaps Down

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.

Wednesday, July 28, 2010

BP's (NYSE:BP) Bonds Up as Market Likes Strategy to Raise Capital

The market liked what they heard from BP (NYSE:BP) on plans to raise capital to deal with the oil spill by selling billions in assets, rather than primarily go the debt route, although they have billions in credit lined up from about a dozen banks to go that route if they have to.

As a result, bonds from BP have went up for two days in a row while the cost of credit default swaps fell, which is insurance used to protect investors against default by a company.

This of course precludes bonds, which are debt after all.

MarketAxess reports that traders were primarily targeting short term bonds of BP, which they pushed up by 3/4 point to a 4.994 percent yield. In comparison to Treasurys, that's 400 basis points above their yield.

Notes due November 2013 which stood at 5.25 percent were the most active.

The progress of BP in stopping the oil from flowing into the Gulf, along with being close to permanently plugging the well has generated optimism.

Fixed-income managers said BP is still a very risky company, even though things have the appearance of settling down.

It won't really be until a firmer grip on overall liabilities emerge, that a more accurate picture of the health of the company in the years ahead will be really known.

And all those assets they're being forced to sell, will also be lost revenue and earnings.

So while a leaner BP with new leadership sounds more attractive than what they've been, it presents a entire new set of problems that can't be dismissed out of hand.

Tuesday, July 13, 2010

BP (NYSE:BP) Default Swaps Fall, with Anardarko (NYSE:APC), Halliburton (NYSE:HAL) and Transocean (NYSE:RIG)

As the day approaches when the oil spill in the Gulf of Mexico is stopped, BP (NYSE:BP), and other with potential exposure to the accident like Anardarko (NYSE:APC), Halliburton (NYSE:HAL) and Transocean (NYSE:RIG), have had the cost of credit default swaps fall as the perception liabilities won't be as much as believed, and the fallout will be manageable is starting to permeate the industry and its investors.

Moody's (NYSE:MCO) also upgraded the overall refining sector from Negative to Stable, giving energy stocks a boost Monday.

Credit default swaps are insurance acquired to protect against potential fault on debt by companies, and according to CMA data, BP swaps lost 36.5 basis points to 334; Transocean Ltd. dropped 42 basis points to 447.3; Anadarko's fell 41.8 basis points to 477.8; and Halliburton was down 12 basis points to 152.1.

BP closed Monday at $36.76, gaining $2.71, or 7.96 percent. Market cap is at $155.09 billion.

Friday, July 2, 2010

BHP (NYSE:BHP), Rio (NYSE:RTP) Credit Default Swaps Rates Lowered

After a compromise concerning the proposed mining tax with the Australian government, BHP BIlliton (NYSE:BHP) and Rio Tinto (NYSE:RTP) credit default swaps dropped.

Credit defaults swaps are used as a protection against defaulting on debt or bonds. The higher the basis points the more costly the insurance is.

For BHP, they fell 2 basis points to 91.5 basis points, while Rio Tinto fell 3 basis points to 134.5, according to prices from Nomura Holdings Inc.

This signals to investors that credit quality has improved for the companies, although at times it can be more perception than underlying reality.

Either way it's good for companies, as it lowers the cost of doing business.

Wednesday, June 23, 2010

BP (NYSE:BP) Credit Default Swaps Rise Again, This Time On Weather Concerns

Credit default swaps are used by a company like BP (NYSE:BP) to protect against the possibility of defaulting on bonds, and the costs to protect that debt has risen again, this time by 61 basis points, to 539.3 basis points for the oil giant.

Much of this is based upon the potential disruption of their Gulf oil spill cleanup efforts, now that the hurricane and storm season is upon us.

As early as next week the first Atlantic storm may enter the Gulf, with the worst storm season in history possibly happening this year, with up to three major storms projected to impact the Gulf, and consequently, the oil cleanup.

A buyer of bonds is paid the face value by the credit swaps if a borrower doesn't meet their obligations.

The basis point refers to what a company pays to protect $10 million in debt on an annual basis, with one basis point equaling $1,000. So the higher the basis points the higher the cost of protecting the debt.

Since April 20, the cost of protecting debt has risen 12 times what it was at the time, another element added to the costs associated with BP doing business.

Wednesday, June 16, 2010

BP (NYSE:BP) Debt Insurance Costs Soar Again

The cost of insuring BP's (NYSE:BP) debt has risen again, as credit default swaps rose to 620 basis points, up from yesterday's close of 495 basis points.

That brings the cost of insuring their debt to $620,000 for each $10 million insured over a five-year period. Just on Monday it stood at $424,000 for each $10 million insured.

This is the highest levels BP has ever reached in insuring its debt levels, and comes on the heals of ongoing pressure to create a huge escrow account to pay out claims from, and being turned on by those in their own industry, all of which points to more potential financial liability in the situation.

Fitch Ratings also downgraded the company by six notches on Tuesday, dropping them from AA to BBB, not far above junk status.

Bank of America (NYSE:BAC) Limits BP (NYSE:BP) Trades

According to a source close to the situation, Bank of America (NYSE:BAC) has told its traders they can't participate in oil trades with BP (NYSE:BP) (LON:BP) which go beyond June 2011.

Under conditions like these, it's almost certain the directive was made because of the liability the oil giant faces, and which are unpredictable beyond that time period.

Normally a company does this in order to protect itself from taking a big hit over the long haul, which in this situation with BP, a year would represent.

There are no guarantees BP will be able to meet its obligations beyond that time, and this is a move by Bank of America to protect itself from potential fallout.

These concerns are also displayed with the growing cost of credit default swaps, which have increased to 515 basis points, and seem to rise every couple of days as the spectacle continues.

What this means is it costs BP $515,000 to insure every $10 million in debt over a five-year period. Just a little over a month ago CDS were at 40 basis points at BP, costing them only $40,000 for each $10 million.

Fitch Ratings downgraded the credit of BP by six notches today, from AA to BBB, placing them not too far away from being considered junk status.

All of this confirms BP is not a good bet over the long term, the reason for the orders from Bank of America concerning BP trades.

Tuesday, June 15, 2010

BP's (NYSE:BP) CDS Costs Rise on Fitch Downgrade

The huge downgrade by Fitch Ratings for BP (NYSE:BP) (LON:BP) had an immediate effect on the cost of securing debt, as the cost of compensating those affected by the Gulf spill rise, and the time-frame to pay claims is diminishing.

With the drop from AA debt to BBB debt, the cost of credit default swaps for BP rose right away, sending the spread wider.

BP's CDS increased to 465 basis points, up almost 75 basis points from the close on Monday, according to Markit. This seems to have been anticipated though, as the basis points had already been moving up even before the downgrade.

Saturday, June 12, 2010

BP’s (NYSE:BP) Debt Insurance Better

BP (NYSE:BP) caught a break on its debt on Friday, as cost for insuring their debt dropped to about 390 basis points early in the day, a big difference from surpassing 500 on Thursday.

Share price of BP rose for the second day in a row, finishing the week at $33.97 in New York, after plummeting on Wednesday.

That didn't stop traders from making heavy bets in the options market though, which was still on fire on Friday.

Trading volume was far beyond the 3-month average of 34,354.200, surging to 132,861,873 shares.

Many think BP is going to cave, possibly as early as Monday, in announcing they're going to either temporarily eliminate or cut their dividend.

Friday, June 11, 2010

Warren Buffett on the Next Financial Crisis

While testifying before the FCIC last week on unrelated matters, Warren Buffett of Berkshire Hathaway (NYSE:BRK-A) fame was asked about where he sees the next financial crisis in the United States coming from, and while it wasn't surprising to me because I've known the risks for some time, it could be enlightening for those who aren't aware of it at this time.

Buffett's response? Municipal bonds.

The problem is the same reasoning behind the current economic crisis and debt load, is the same reason for the upcoming bursting of the muni-bond bubble, and that is the complete and irresponsible spending by politicians who refuse to say no.

Worse than that, it's the usual entitlement spending which the government is locked into which is unsustainable, but again, the politicians refuse overall to stop these types of programs, cut taxes, and encourage the private sector to take care of things.

According to George Soros, he said a couple of months ago, that the best way to invest in relationship to this situation is to go "short on bonds by buying a CDS contract carries." He added it would almost guarantee "unlimited profit potential."

Wednesday, June 9, 2010

Anadarko Petroleum (NYSE:APC) Hammered on Gulf Exposure

Anadarko Petroleum (NYSE:APC) shares got pummeled today on worries over its exposure to the Gulf oil crisis, as they own a 25 percent stake in the oil well attempting to be stopped from leaking.

Shares closed at $34.83 for the day, a drop of $7.97, or 18.62 percent.

Volume soared above normal as well, with the 3-month average of 7,900,000 getting demolished, as 45,634,689 of Anadarko shares traded hands.

It also didn't help to learn the credit default swaps for Anadarko increased by 145 basis points, to 575 basis points, significantly increasing the cost of insuring every $10 million in debt.

BP (NYSE:BP), Anadarko (NYSE:APC), Transocean (NYSE:RIG) Credit Default Swaps Costs Soar

Credit default swap (CDS) costs continue to rise for companies with potential and significant liability to the Gulf oil spill, including BP (NYSE:BP), Anadarko (NYSE:APC) and Transocean (NYSE:RIG).

What credit defaults are used for are to insure the debt of a commpany.

In the case of BP, their cost to insure their debt increased by 106 basis points to 368 basis points, which means it costs them $368,000 a year now to insure every $10 million they are in debt for, according to Markit Intraday.

For Anadarko, their credit default swap costs have risen even further, by 145 basis points, to 575 basis points, while Transocean's credit default swap rose by 70 points to also reach 575 basis points.

These three companies are probably the most at risk in the accident, with BP owning 65 percent of the oil well, Anadarko 25 percent, and Transocean being the company who had operational responsibility for the Deepwater Horizon oil rig.

Wednesday, June 2, 2010

BP (NYSE:BP), Transocean (NYSE:RIG), Anadarko (NYSE:APC), Halliburton (NYSE:HAL) Credit Swap Price Increases

BP (NYSE:BP), Transocean (NYSE:RIG), Anadarko (NYSE:APC), Halliburton (NYSE:HAL) are not only getting hit from their connection and exposure to the oil spill in the Gulf of Mexico, but also from increased costs of doing business like that related to credit default swap price increases.

All four oil companies have incurred price increases from an increase in basis points in relationship to credit default swaps, which are used to insure their debt.

The higher the basis point the more costly the cost of buying the insurance.

BP had theirs rise 255 basis points, or $255,000 a year to insure $10 million for five years, a record amount for the company. That's a huge increase from the approximate 100 basis points just last Friday.

Transocean had their costs soar by 183 basis points to 590 basis points, also a record for the company, while Anadarko had theirs grow 103 basis points to a high of 430 basis points.

Halliburton didn't suffer as high as an increase but still had their basis points grow by 35 to 157 basis points, according to Markit data.

Wednesday, May 12, 2010

BP (NYSE:BP), Transocean (NYSE:RIG), Anadarko Petroleum (NYSE:APC) and Halliburton (NYSE:HAL) Debt Costs Rise

The cost of debt for oil energy companies like BP (NYSE:BP), Transocean (NYSE:RIG), Anadarko Petroleum (NYSE:APC) and Halliburton (NYSE:HAL) have soared the most in 17 months after the explosion on the oil rig Deepwater Horizon, which resulted in the deaths of 11 people.

Since April 28, investors have pushed up the yield of bonds of energy companies by 32 basis points, the largest surge since December 4, 2008.

Extra yields on BP bonds have investors pushing them up by 115 basis points, equal to 1.15 percentage point since April 28.

The extra cost to BP from higher interest would be $182 million annually to refinance the $24 billion in bonds if they were rolled over at today's rates.

Bonds for Transocean, which are valued at $500 million with 5.25 rate and due in 2013, decreased significantly from close to 82 basis points to 206 basis points.

For Halliburton, $400 million of their 5.9 percent notes due in 2018 moved from 77 basis points to 131 basis points.

Anadarko Petroleum bonds plunged 6.07 percent when contrasted with government securities. The above changes are based from April 28.

Other costs associated with the circumstances is the increased cost of insuring the credit default swaps on the bonds, with BP debt increasing to 81 basis points from the prior 46 basis points. That means there is growing pessimism as to the quality of the credit of a company.

Tuesday, May 4, 2010

Anadarko (NYSE:APC) Credit-Default Swaps Costs Surge

After the introduction of spill legislation yesterday, the cost of protecting Anadarko Petroleum (NYSE:APC) debt rose to its highest levels in close to a year as liability would increase from $75 million up to a staggering $10 billion if the bill is passed.

Anadarko has a 25 percent non-operating interest in the leaking rig.

Costs for credit-default swaps increased 15 basis points to 120.6 basis points, the most its been since May 26, 2009.

For a smaller oil company like Anadarko, which generated $716 million in net income last quarter, or $1.43 a share, the exposure is extraordinary, and could ultimately be devastating in the worst case scenario, which isn't out of the question in light of the negative publicity and extent of the oil spill.

Friday, February 26, 2010

Goldman Sachs (NYSE:GS) Greece Credit Default Swaps

Goldman Sachs Greece Credit Default Swaps

The pathetic chairman of the Federal Reserve, Ben Bernanke, blathered on recently on how the Securities and Exchange Commission will be checking into Goldman Sachs (NYSE:GS) and their practices concerning using legal credit default swaps as a best against Greece defaulting on their debt.

Credit default swaps are a type of insurance used against bond defaults. They are tools to use as hedges in other words.

But for Bernanke, who should be the one being interrogated for his role in the collapse of the U.S. economy through easy and cheap credit, along with his response of printing an endless amount of money which is continuing to destroy the value of the U.S. dollar.

Anyway, to now to play god again from his perch at the helm of the Federal Reserve, evidently feeling aggressive from his installment for a second term as Chairman of the Federal Reserve, Bernanke is making it look like Goldman Sachs is doing something wrong by betting against Greece. This is something done all the time by individual and institutional investors, in a number of catergories, currencies and countries.

To make this look unusual shows the disingenuousness of Bernanke and the U.S. government which continues to attempt to distract the American public by stunts and assertions like this which takes the focus off of their outrageous behavior with bailouts using taxpayers' money.

Goldman Sachs Greece Credit Default Swaps