Hypo Venture Capital Zurich Management: News Corp. Swaps Diverge as S&P Considers Cut: Corporate Finance

Credit-default swaps on News Corp. (NWS) are the highest on record relative to its media peers as Standard & Poor’s says it may cut the publisher’s bond rating because of risks associated with the phone-hacking scandal.

The cost of protecting debt of the owner of the Fox TV networks and the Wall Street Journal from default soared 58 basis points this month to 142 basis points as of yesterday, compared with an increase of 10 basis points for the average contract on Rupert Murdoch’s company and its four biggest competitors. Relative yields on News Corp.’s bonds have risen 31 basis points, while those of similar companies widened one basis point, Bank of America Merrill Lynch index data show.

S&P said in a statement it may lower New York-based News Corp. (NWSA)’s BBB+ corporate credit rating after “broadening legal inquires” into the phone-hacking scandal centering on the defunct News of the World newspaper “increased business and reputation risks” for the media company. The review came just five days after the ratings company said the outlook was stable.

“The court of public opinion can be fairly merciless, and that’s the bigger headwind now,” Tom Farina, managing director at Deutsche Insurance Asset Management in New York, which oversees $200 billion, said in a telephone interview. While News Corp. may not see “direct financial ramifications,” the reputational damage is the larger risk, Farina said.

Most on Record
Credit-default swaps on its News America Inc. unit are the highest on record, compared with the average contract on the debt of competitors. Swaps on News Corp., Walt Disney Co. (DIS), Time Warner Inc.,Comcast Corp. (CMCSA), and Viacom Inc. (VIA/B) climbed to 79 basis points from as low as 54 basis points in December, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

News Corp. Swaps Diverge as S&P Considers Cut


News Corp. has $15.5 billion of long-term borrowings, according to data compiled by Bloomberg.

Contracts protecting debt issued by News America, which pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt, have almost doubled since July 13, adding 64 basis points to reach the highest since April 2009, according to CMA. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The contracts fell four basis points to 136 basis points as of 11:46 a.m. in New York, after earlier climbing as high as 145, according to broker Phoenix Partners Group.

‘Healthiest Balance Sheets’
“We’ve got one of the healthiest balance sheets in the business,” said Alice Macandrew, a News Corp. spokeswoman in London. “I can’t imagine anyone would be worried” about the company’s ability to service its debt.

Revelations that reporters from the News of the World hacked into dozens of telephone messages left for people including celebrities, members of Prince Charles’s staff and a murdered schoolgirl forced Murdoch, 80, to shut the newspaper and abandon a plan to purchase the 61 percent of British Sky Broadcasting Group Plc it didn’t own.

The scandal has also led to the resignations of News Corp. executives Les Hinton and Rebekah Brooks; she was arrested July 17 in London. Two top police officers also resigned amid investigations of links between the News of the World and Scotland Yard.

News Corp. is considering elevating Chief Operating Officer Chase Carey to chief executive officer, succeeding Murdoch, people with knowledge of the situation said. A decision hasn’t been made and a move depends on Murdoch’s performance before Parliament today, said the people, who weren’t authorized to speak publicly. Murdoch would remain chairman, the people said.

News Corp. Swaps Diverge as S&P Considers Cut
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