Petrobras Swaps Rise On Fears Credit Rating Could Be Pared

Credit default swaps used to insure debt issued by Petrobras (NYSE: PBR), Brazil's state-run oil company, are rising on fears that the company's credit rating could be cut following an oil-for-shares swap with the Brazilian government.

Petrobras is planning to exchange $40 billion, or more, of its own stock to acquire 5 billion barrels of oil from the government. Investors fear the swap could threaten Petrobras's independence.

Five-year credit default swaps as the company is known, cost 177 basis points, or 1.77 percentage points, compared with 117 for contracts on Brazil debt after reaching a spread of over 60 basis points last week, according to Bloomberg News.

Moody's Investors Service rates Petrobras two notches than Brazil itself. Standard & Poor’s cut Petrobras one level to BBB-, the lowest investment grade and the same rating as Brazil’s government, a year ago, while Fitch Ratings Ltd. grades Petrobras one level higher than the government at BBB, Bloomberg reported.

Petrobras said earlier this year it doesn't want to issue new debt, acknowledging such a move could threaten its credit rating.

A spread of 177 basis points means investors must pay $177,00 to insure Petrobras bonds against default for five years. That spread has surged 55 basis points since the end of last year.