TDC was punished by European credit markets on Thursday amid concern a leveraged buyout would leave the Danish telecoms firm loaded with debt. Elsewhere, trading was subdued as a dearth of new issuance and tight yield spreads left investors with little motivation to take positions.
Five-year credit default swaps on TDC traded around 30 basis points wider bid at 178 basis points, traders said, after US buyout giant KKR joined a bid battle expected to top $10 billion.
"TDC got hit with news on the bid, though it didn't have any effect on the telecom sector," said a trader. "The rest of the market is quiet because people are waiting for issuance."
Private equity bids hurt credit because of worries the bidder will finance any take-over by loading the target's balance sheet with debt. There is some 100 billion euros of private equity cash currently looking for a home, according to estimates published by J.P. Morgan.
Private equity firms have been frustrated in recent months, failing to net targets including Spanish mobile phone company Amena, bought by France Telecom, as well as Wind, the telecoms arm of Italian utility Enel and Cesky Telecom.
Elsewhere, trading remained subdued as investors looked for clues on whether borrowers were likely to emerge soon.
Sales of investment grade corporate bonds this month, including those announced but not yet completed, amount to a mere 2 billion euros. That compares with 14 billion euros for the whole of September last year.
One credit that did see action on Thursday was Safeway, the cost of protection on which rose five basis points to 74 basis points after Britain's GMB trade union voted in favour of strike action at parent supermarket group Wm Morrison.
"Spreads are so tight that a lot of investors have got long and even the smallest amount of bad news can have an effect," said a trader.
Elsewhere, debt in Kingfisher Plc, the owner of Britain's B&Q and France's Castorama home improvement chains, slipped as it posted a 23 percent fall in first-half profits.
Five-year default swaps on Kingfisher widened 3 basis points to 50 basis points, a trader said, while its bonds traded one or two basis points wider. Ratings agency Fitch said it may cut its BBB+ rating on the company.
Rival home improvement chain Focus Group also suffered in the high-yield market, with its sterling mezzanine note due 2015 dropping 5 percentage points to be bid at 75 percent of face value, another trader said.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 36.5 basis points more than similarly dated government bonds at 1440 GMT, 0.3 basis points tighter on the day.
Greek mobile operator TIM Hellas plans to start marketing a 1.28 billion euro ($1.56 billion) two-part high-yield bond next week to finance its buyout earlier this year by private equity firms, a market source said on Thursday.
The sale will comprise a 925 million euro 7-year senior secured floating-rate note and a 355 million euro 8-year senior unsecured bond, the source said.
German phone operator Deutsche Telekom sold a 9-year, 250 million pound ($456 million) bond priced to yield 69 basis points over Gilts, said a source familiar with the deal. The bond pays a coupon of 4.875 percent and was sold at 99.715 percent of face value.
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