Charter Communications NASDAQ:CHTR debt posted a sharp rally Monday as traders started pricing in the possibility that Comcast NASDAQ:CMCSA could eventually pursue a combination with the broadband company. The move came after Comcast announced plans to spin off its NBCUniversal and Sky media assets next year into a separate publicly traded company, a step that some investors believe could possibly open the door to broader cable and media dealmaking.
Charter's 7% note due in 2033 rose as much as 4.125 cents on the dollar, its biggest move since the bond was sold, and moved close to face value for the first time in two months. The rally also showed up in credit markets, where the cost of protecting Charter debt against default for five years fell as much as 0.66 percentage point to 2.9 points, marking the largest intraday drop on record for the company's credit default swaps.
A Comcast-Charter deal could be easier to imagine after the planned media spinoff, but it would still likely face antitrust scrutiny given the size of the combined cable broadband business. Comcast's investment-grade rating and stronger balance sheet could be a positive for Charter if a combination ever happened, especially as Charter debt has been under pressure from broadband competition. Reports that SpaceX and Charter held executive-level talks about a possible consumer mobile phone partnership also helped fuel the rally, while Charter shares surged as much as 26% Monday, their biggest gain on record.