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Shell Debt Risk Falls After Company Agrees $5 Billion Loan

San Francisco Chronicle

Friday, August 13, 2010

Aug. 13 (Bloomberg) — Credit-default swaps linked to Royal Dutch Shell Plc fell to the lowest in two weeks after Europe’s largest oil company said it obtained $5.1 billion of credit lines to refinance debt.

Contracts on Shell fell 2 basis points to 76.3, the lowest since July 29 and the first decline since Aug. 9, according to data provider CMA. Swaps are used to speculate on a company’s ability to repay debt and fall when perceptions of credit quality improve.

Shell, based in the Hague, said yesterday it agreed a five- year revolving credit line to refinance a $2.5 billion facility expiring in April 2012. It didn’t disclose the interest margin or lenders.

The average interest rate Shell pays in 2010 for floating- rate debt in dollars fell to 1.3 percent from 3.8 percent two years ago, according to filings. Debt increased to $40 billion at the end of June from $30 billion a year earlier, Shell said in its second-quarter earnings statement July 29. Net income rose 15 percent to $4.4 billion, helped by higher oil prices.

Standard & Poor’s rates Shell’s debt AA, the third-highest investment grade. Moody’s Investors Service ranks it a step higher at Aa1, in line with Fitch Ratings’ assessment of AA+.

ABN Amro Bank NV, Barclays Capital, Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, Lloyds Banking Group Plc, Merrill Lynch & Co., Royal Bank of Scotland Group Plc, Societe Generale SA, and UBS AG arranged the $2.5 billion facility in 2005, according to data compiled by Bloomberg.

A basis point on a credit-default swap protecting 10 million euros ($13 million) of debt from default for five years is equivalent to 1,000 euros a year.

–Editors: Cecile Gutscher, Michael Shanahan

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