Nevertheless, a London-based telecoms credit analyst speculated that while the S&P move would not have a large direct impact on the firm's bonds, it might have an indirect one. “If the market is going to interpret the move as anything, it will take it as a sign that Moody’s will raise its outlook on BT from stable to positive,” he said.
BT five-year credit default swaps traded at a spread of about 94 basis points (bp) today in thin trading.
A credit analyst in London said he had heard no rumours of an S&P upgrade, but said such a move would be logical.
Other credit traders said the Moody’s rating is more important because of step-up coupons that BT provides on a number of its bonds. Some BT bond contracts specify a 25bp increase in interest payments if either agency downgrades the company one notch – 50bp for both. So BT’s one-notch downgrade by Moody’s in May triggered a step-up.
“This means the market is much more focused on a Moody’s upgrade than an S&P upgrade,” explained the analyst, “If Moody’s raises the rating, the coupon falls off.”
As such, bonds without a coupon step-up are likely to outperform bonds that have step-up protection on an S&P change.
An S&P spokeswoman said the agency does not comment on ratings until they are published.