Credit derivative indexes were slightly wider, in extremely thin trading on the last day of the year on Wednesday. By 1040 GMT, the investment-grade Markit iTraxx Europe index was at 177 basis points, according to data from Markit, 1 basis point wider versus late on Tuesday.
The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 1,024.75 basis points, 14.75 basis points wider. Spreads on both indexes have at least tripled over the course of the year as the credit crisis deepened and spilled over to the economy. The Europe index has widened by about 130 basis points over the year, hitting a record wide of 220 basis points on December 5. The Crossover index, meanwhile, is some 690 basis points wider versus a year ago, having hit record wide levels of 1,100 basis points also on December 5.
Bonds in LyondellBasell, the world's third-largest petrochemical company, sank to be bid at 4 percent of face value on Wednesday on a media report that the company was considering filing for bankruptcy protection. The Wall Street Journal, citing people familiar with the matter, said the privately-held firm has hired bankruptcy counsel and may file for Chapter 11 shortly.
LyondellBasell also told lenders it is seeking up to $2 billion in bankruptcy financing, the newspaper said. LyondellBasell could not be reached by Reuters immediately. LyondellBasell's 500 million euro bond, due to mature in 2015, was bid at 4 percent of face value and offered at 8 percent, down from 8 percent bid in the weeks prior to Christmas, a trader said.
The company also has a $615 million bond maturing in 2015. Its five-year credit default swaps, which have been trading upfront for at least six months, were bid at 77.5 percent upfront and offered at 78.5 percent upfront, according to Markit data, up sharply from around 50 percent upfront at the start of the month.
"This isn't a tremendous surprise as the bonds have been trading sub-10 for some time now," the trader said, adding that a coupon due in February now looked unlikely to be paid to bondholders.
LyondellBasell has around $26 billion in debt, according to Standard & Poor's, which slashed the company's rating multiple notches to 'selective default' on Tuesday. "Our downgrade follows the group's decision to postpone $280 million of payments due under the bridge loan conversion," said S&P credit analyst Tobias Mock. Moody's Investors Service also cut the company's rating two notches to Caa2 from B2.
"The advisors have been appointed, so now we will have to wait to see what proposals they come up with but bondholders and second lien investors will have to take massive haircuts if there is some decision made to keep the company going with Access putting more money in," the trader added. Basell is part of Access Industries, a privately-held company founded by Russian billionaire Len Blavatnik.
The trader said recovery rates on the bond, taking into account where they are now trading, would probably be around 3 percent of face value. Sector rivals were also hit by the report. Bonds of UK chemicals company Ineos traded at 9 percent of face value on Wednesday, down from 11 percet bid and 14 percent offered on Tuesday, the trader said.
"They just got their waiver through so it has taken some pressure off them, but this is certainly not good for the sector," he added. Ineos secured a majority consent for its loan waiver request three weeks ago, buying it six months to draw up a new business plan and reset its covenant agreements.
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