According to Fitch Solutions, market concerns over Petroleo Brasileiro SA’s (Petrobras) ability to carry out its future investment plan has sent the company’s credit default swaps (CDS) to their widest levels in four years.
Petrobras’ CDS have widened 89% year over year. At 300 basis points, credit protection on the oil company’s debt is widening to levels not seen since April 2009.
The likely reason for worsening market sentiment is that Petrobras may need to issue more debt to help finance its five year investment plan worth approximately US$ 237 billion.
The CDS Implied Rating (CDS IR) for Petrobras moved one notch lower to BB+, two notches below IDR, three months ago. If CDS continue trending at current levels, the CDS IR is likely to move lower again.
CDS Liquidity for Petrobras has increased also increased significantly, moving up from trading in the 21st global percentile to the sixth. Higher CDS liquidity is another sign of heightened market uncertainty over Petrobras’ credit prospects.
Adapted from a press release by Emma McAleavey.
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