Credit-default swaps referencing SpaceX started to trade on Thursday, shortly after the company completed its inaugural high-grade bond offering earlier this week. Market participants say the move gives investors a way to hedge potential losses tied to SpaceX debt or to take positions on the company’s creditworthiness.
Wall Street bond dealers began quoting buy and sell prices for swaps linked to SpaceX in the wake of the company’s $25 billion bond sale on Tuesday. SpaceX operates businesses across launch vehicle operations, satellite services and artificial intelligence applications.
Market indications point to some selling pressure on the new securities. The bonds have weakened relative to U.S. Treasuries since the initial sale, a dynamic consistent with investor selling in the secondary market.
Dealers provided price guidance for both buying and selling protection even before the bond offering was publicly announced, according to market reports. One dealer’s price sheet showed that insuring SpaceX debt against a default over a five-year horizon would cost approximately 1.255 percentage points per year. That equates to about $125,500 in annual protection premiums for every $10 million of principal covered.
For context, the cost of similar five-year default protection for Intel Corp., a company with comparable credit ratings, was roughly 0.64 percentage points per year according to the same market snapshot.
Credit derivatives operate as insurance-like instruments that pay out if an issuer fails to meet its debt obligations, such as missing bond interest payments. These instruments often reflect investor concerns about credit risk earlier than movements in physical bonds, partly because derivatives can be easier to transact than the underlying bonds.
On Thursday, SpaceX’s 10-year notes were trading at a spread of 1.57 percentage points, wider than the 1.4 percentage points they traded at immediately after the sale on Tuesday.
Note - This report confines its statements to reported market pricing and trading activity around SpaceX debt and related credit derivatives.