http://www.bloomberg.com/apps/newspid=20601087&sid=aINQgYHQ1gIU&refer=worldwide EADS May Suffer Ratings Cut After Losing FedEx Order By John Glover Nov. 8 (Bloomberg) -- European Aeronautic, Defence & Space Co., the parent of Airbus SAS, may have its debt rating cut after FedEx Corp. canceled a $2.3 billion order and the company posted an unexpected loss, according to traders betting on the creditworthiness of companies in the credit-default swap market. The perceived risk of owning EADS's 2.1 billion euros of bonds rose after the company lost 195 million euros ($249 million) in the third quarter and FedEx, the biggest air cargo company, scrapped an order for 10 planes. Credit-default swaps are financial instruments based on corporate bonds and loans that are used to speculate on a company's ability to repay debt. ``We could see something on the ratings front this month or next,'' said Simon Ballard, a London-based analyst at Arc Securities. ``It's more likely now because of the results, because of the delays, because of the steady drip of canceled orders going forward.'' Moody's Investors Service, which rates the company A1, the fifth-highest grade, put the rating under review for a possible downgrade on Sept. 22, citing delays with developing the A380, the plane FedEx had ordered. Standard & Poor's on Oct. 11 dropped its rating to A-, two levels lower than Moody's, and said it may reduce it again. `Increased Concerns' The cut reflects ``increased concerns over the internal management of the group and its ability to resolve significant organizational and competitive challenges,'' S&P said in its report. The cost of credit-default swaps based on 10 million euros of EADS's bonds rose 2,157 euros to 22,520 euros today, according to data compiled by Bloomberg. An increase suggests deterioration in the perception of credit quality; a decline indicates an improvement. Investors who buy the contracts, sold by financial firms such as New York-based JPMorgan and HSBC Holdings Plc in London, are paid 10 million euros in exchange for the notes should the company fail to adhere to debt agreements during the next five years. The third-quarter net loss EADS reported compared with net income of 279 million euros a year earlier, the Paris- and Munich-based company said in a statement. EADS was forecast to report profit of 142 million euros, according to the median estimate of seven analysts surveyed by Bloomberg News. The FedEx cancellation follows three announcements by Airbus of delays to its A380 program, most recently on Oct. 3. FedEx said it will switch its order to buy 15 Boeing Co. 777 freighters for as much as $3.6 billion. More Cancellations ``We do not expect this to be the last of the cancellations,'' said Frances Hutt, an analyst at Barclays Capital, in the bank's morning note. United Parcel Service Inc., the world's largest package- shipping company, said in a meeting with investors in Atlanta today that it can take its time in deciding whether to change its order for 10 Airbus A380s. EADS isn't facing an imminent crisis, said Rick Mattila, an analyst at Dresdner Kleinwort in London. It has net cash of 4.8 billion euros, down from 5.5 billion euros at the end of last year, Chief Financial Officer Hans Peter Ring said on a teleconference from Amsterdam today. There is ``some upside potential'' for the company's cash position in the final quarter of the year, Ring said. He declined to provide an estimate. Construction Approved Airbus also has proposed developing an all-new, mid-sized, long-range plane to compete with Boeing's 787. The board of EADS hasn't yet approved construction of the plane. ``The A380 and the A350 are key in terms of competing with Boeing in the longer term,'' said Mattila at Dresdner. ``At present, it has an order book well in excess of 200 billion euros for its older products,'' he said. ``After five years or so, the orders for the older products will begin to tail off.'' The yield premium investors demand to hold the company's 500 million euros of 5.5 percent bonds due 2018 rather than government notes of similar maturity today increased 1 basis point to 70 basis points. A basis point is 0.01 percentage point. The perception of European credit quality as measured by the iTraxx Crossover Index deteriorated today. The index, which includes 45 companies with investment-grade and non-investment grade ratings, rose to 239,700 euros, or 2 percent, from 235,000 euros yesterday, according to JPMorgan Chase & Co. Companies in the Crossover Index have more than $80 billion of bonds outstanding. The average daily fluctuation of the index is 1.5 percent, according to Bloomberg calculations. The iTraxx Europe Index, which includes 125 companies with investment-grade ratings, rose to 24,500 euros. Credit-default swaps are the fastest growing market for derivatives, financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. --------------------------------- Sponsored Link Mortgage rates near 39yr lows. $420,000 Mortgage for $1,399/mo - Calculate new house payment