June 28 (Bloomberg) — Bloomberg’s Greg Stohr reports on the latest Supreme Court rulings, including one that said Congress violated the Constitution when it set up an auditing board under the 2002 Sarbanes-Oxley law. In other decisions, the high court rejected the Justice Department’s bid for as much as $280 billion in tobacco company profits and put limits on business method patents. (Source: Bloomberg)
The cost to protect against losses on bonds of Altria Group Inc. and Reynolds American Inc. fell the most in at least a year after the U.S. Supreme Court rejected a Justice Department bid for as much as $280 billion in tobacco company profits.
Credit-default swaps on Altria Group and Reynolds American, the largest cigarette makers, dropped after the high court’s refusal to hear an Obama administration appeal made it likely the racketeering suit first pressed during Bill Clinton’s administration won’t produce financial penalties against Altria’s Philip Morris USA and R.J. Reynolds Tobacco Co.
Altria and Reynolds are “the biggest movers by a mile after the Supreme Court ruling on damages,” Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California, wrote in an e-mail.
The benchmark Markit CDX North America Investment Grade Index climbed 2.1 basis point to a mid-price of 116.2 basis points as of 6:01 p.m. in New York, according to Markit Group Ltd. Investors use the index to hedge against losses on corporate debt or to speculate on creditworthiness. Credit swaps on most of the 125 companies in the CDX index, which trade independently of the index itself, fell today. Only six of the companies increased more than a basis point.
Swaps on Altria fell 59 basis points to 169, and contracts on Reynolds lost 50 basis points to 187, the biggest drop since April 2009, according to CMA DataVision.
European Index Falls
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 1.6 basis points to 124.5, Markit prices show. The Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings dropped 3.6 basis points to 545, Markit prices show. The contracts are down from 633.2 basis points June 8.
Altria’s $1.5 billion of 10.2 percent bonds due in 2039 rose to the highest level in more than five weeks. The bonds of Richmond, Virginia-based Altria, the largest U.S. tobacco company, rose 8.76 cents to 133.76 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds traded at 134.1 cents on the dollar on May 18, Trace data show.
This is the second time the Supreme Court has refused to hear government arguments in the case. The court also rejected a group of industry appeals aimed at overturning a trial judge’s finding that the cigarette makers defrauded the public about the dangers of smoking for more than 50 years.
U.S. District Judge Gladys Kessler’s ruling could open companies to continuing judicial oversight and impose more stringent limits on their business practices than the 2009 law that let the FDA regulate tobacco.
‘Ill-Gotten Gains’
The government appeal, filed by U.S. Solicitor General Elena Kagan, argued that judges have authority to order the return of “ill-gotten gains” under the 1970 U.S. Racketeer Influenced and Corrupt Organizations Act, known as RICO.
“Congress vested district courts with full equitable authority to award complete relief for violations of RICO, including orders to disgorge ill-gotten gains,” argued Kagan, now PresidentBarack Obama’s nominee to the high court. Her Senate confirmation hearings begin today.
The cost to protect BP Plc’s bonds against default fell for the first time in more than a week after the company stood by its August timeline for plugging the leak causing the biggest U.S. oil spill on record, sticking with a plan that may set the company up to beat its own schedule.
Credit-default swaps tied to BP fell 5.6 basis points to 583.1 basis points, according to CMA DataVision prices. The price of swaps on London-based BP, which rises as investor confidence in the company’s creditworthiness deteriorates, has soared more than 12 times the level of April 20, the day of the rig explosion that triggered the spill that has cost BP $2 billion in cleanup costs.
To contact the reporters on this story: Mary Childs in New York at mchilds5@bloomberg.net;Shannon D. Harrington in New York at sharrington6@bloomberg.net