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Equity’s Pain Can Be CDS’s Gain

24 March 2015 by lberuti

FCX ( Freeport-McMoRan Inc ) announced this morning that they are cutting their dividend by more than 80%. The market was taken by surprise, as a recent rebound in the price of copper from the January lows had reassured them regarding the sector's health. That triggered heavy selling on the stock: it lost more than 3% shortly after the opening bell, even though it stabilised down 1% afterwards. But this unexpected decision will also save the company roughly $1.1bln. As the management also mentioned potential asset divestitures that were said to be off the agenda only a week ago, it will help protect FCX’s balance sheet. The credit market duly factored this positive newsflow in, and sent the 5 year risk premium of FCX 21bps tighter at 277bps.