June 10, 2010 / 3:58 PM / in 8 years

Anadarko, Transocean swaps trade upfront-Markit

NEW YORK, June 10 (Reuters) - Credit default swaps (CDS) for Anadarko Petroleum Corp (APC.N) and Transocean Ltd (RIG.N) started trading on an upfront basis on Thursday, indicating increased short-term concerns over their liabilities in the largest U.S. oil spill in history.

When CDSs trade upfront it indicates that sellers of the protection are demanding more premium at the outset of the contracts to protect against losses, and implies heightened concerns about a company’s credit quality.

Buyers of protection on Anadarko’s debt now need to pay 8 percent of the sum insured at the outset of the contract -- or $800,000 to insure $10 million in debt for five years -- in additional to annual payments of 500 basis points, or $500,000, according to Markit Intraday.

The equivalent spread on the contract would equal 711 basis points, compared with 657 basis points at Wednesday’s close, according to Markit data.

The cost of insuring Transocean debt traded with an upfront premium of 7 percent, which equals a spread of 667 basis points, Markit said. Transocean’s swaps closed on Wednesday at 628 basis points.

    Anadarko owns 25 percent of the oil well that exploded in the Gulf of Mexico in April, causing a massive spill that BP Plc (BP.L)(BP.N), the largest owner, has struggled to stop. Transocean operated the rig.

    BP’s credit default swap costs also rose 94 basis points on Thursday to 475 basis points, or $475,000 per year to insure $10 million in debt for five years, Markit said. (Reporting by Karen Brettell; editing by Jeffrey Benkoe)

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