Ackman Stains P&G Credit

Swaps move higher on fears activist investor will favor shareholders over bondholders.

Traders are pushing derivatives linked to Procter & Gamble Co. debt to the riskiest level relative to Colgate-Palmolive Co. and lower-rated Unilever since 2009 on concern that investor Bill Ackman will pressure the company to reward shareholders at lenders’ expense.

The cost to protect bonds of the world’s largest consumer-goods maker from default has increased 10.2 basis points to 0.62 percentage point yesterday in New York since July 11, after Ackman bought a $1.8 billion stake in P&G. While the stock has since gained 5.6 percent as bullish options wagers surge, bonds of the maker of Tide, Pampers and Crest are underperforming as profit margins narrow and sales growth decelerates to the slowest since 2009.

P&G Stake

The company’s debt has returned 3.37 percent this year through July 11, versus 5.01 percent for all AA corporate securities, according to Barclays Plc index data. P&G is rated Aa3 by Moody’s Investors Service and an equivalent AA- at Standard & Poor’s. Unilever is one level lower, A1 by Moody’s and A+ at S&P.

Undervalued Companies

P&G considers its credit rating important, Chief Financial Officer Jon Moeller said at the Deutsche Bank Consumer Conference on June 20. The company decided to suspend share repurchases to protect itself from downgrades, he said.

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