The cost of insuring against default by Deutsche Telekom rose slightly on Monday after German state development bank KfW agreed to sell a 4.5 percent stake in the German phone company to US private equity firm Blackstone for 2.68 billion euros.
"The widening is because Blackstone is a private equity firm. But there isn't anything to worry about, because Blackstone seems to have no intention of taking control of DT," said a telecoms trader in London.
Private equity companies take over corporations by loading their target's balance sheet with debt to pay for the purchase, reducing a target corporation's credit worthiness.
"We find it very hard indeed to imagine private equity players raising their stake to anywhere near control," Dresdner Kleinwort Wasserstein analysts said in a reach note.
The trader said the five-year credit default swaps of DT was one basis point higher than Friday at 37 basis points. That means it costs 37,000 euros to insure 10 million euros of DT debt against default.
Elsewhere in the CDS market, the merger of Italy's Autostrade and Spain's Abertis in the infrastructure sector has tightened the CDS of Autostrade.
"They are going to be a bigger entity after the merger and maybe there is less leveraged buyout risk if they are bigger," said a second credit trader in London.
The combined Autostrade and Abertis entity will have a market capitalisation of 25 billion euros. The deal involves a one-for-one share swap worth around 15 billion euros.
The new company will be headquartered in Barcelona, and it will be the world leader in infrastructure management with investments spanning toll roads to airports, parking, telecommunications and media.
The five-year CDS of Autostrade fell two basis points to 26 basis points at 0747 GMT.
But the merger is not expected to leave a credit-positive imprint in the CDS market for the longer term. Analysts at HVB said they continued to recommend an underweight position in both companies.
"Although the business profile clearly improves as a result of this transaction, we note that the combined entity will also clearly aim to do acquisitions in other European countries," the analysts wrote in a note to clients.
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 46.7 basis points more than similarly-dated government bonds at 0757 GMT, unchanged on the day.
This week brings a slew of quarterly results from major European borrowers, with first-quarter results from Electrolux, the world's biggest maker of household appliances, and quarterly sales from French carmaker Renault, both due later on Monday.
In the primary market, Network Rail Infrastructure Finance Plc's planned a 5-year benchmark dollar bond will be priced later this week to yield about 30 basis points over US Treasuries, a banker familiar with the deal said on Monday.
Barclays Capital, Citigroup and UBS are managing the deal for the finance unit of the company that runs Britain's rail network.
Elsewhere in the pipeline, privately held US agribusiness giant Cargill Inc's planned 7-year euro bond will be priced to yield "mid- to high- 40s" basis points over swaps, an official at one of the lead managers said on Monday.
The bond will be benchmark-sized, meaning it will total at least 500 million euros ($616 million). Lead managers Deutsche Bank, HSBC and UBS first announced the deal in late March.
In underlying government bond markets the yield on the interest rate sensitive two-year Schatz was 3.281 percent, 2.2 basis points more on the day, while the 10-year Bund was yielding 3.912 percent, 3.2 basis points more. The 10-year euro swap rate was 4.124 percent.
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