Credit default swaps on Anglo-Dutch firm Corus yoyo-ed on Friday as the steelmaker clarified plans to refinance existing debt after it agreed to be bought by India's Tata Steel.
Early in the day, Corus credit default swaps (CDS) rallied sharply on the expectation its bonds would be bought back, leaving no debt deliverable under existing CDS contracts.
Tata Steel UK, which has been formed to make the acquisition, has arranged a senior term loan of 1.6 billion pounds ($3 billion), a 350 million pound senior revolving credit facility and a 1.35 billion pound mezzanine bridge loan, the two companies said.
Analysts said the deal could be structured to resemble the purchase of Pilkington by Japan's Nippon Sheet Glass, in which bank debt was raised at the acquisition vehicle level.
But later in the day, as details of the financing sunk in and a source close to the situation said Corus planned to issue a high-yield bond to refinance the bridge loan, the cost of insuring Corus's debt widened back out.
By 1430 GMT five-year CDS on Corus, which had traded as tight as 110 basis points, were back to little changed at a mid-price of 140 basis points, a high-yield trader said.
Elsewhere, the cost of insuring the debt of ProSiebenSat. 1 rose after a report in the Financial Times Deutschland said US investor Haim Saban was set to restart efforts to auction off his stake in the German broadcaster.
Five-year credit default swaps on ProSiebenSat1 were 10 basis points wider at a 155 basis point mid-price, a trader in Germany said.
A source close to the situation told Reuters that US investment banks J.P. Morgan and Morgan Stanley had been mandated to run the deal. And CDS on EMI rose 5 basis points to a 136 basis point mid-price, another trader said, after the world's third-largest music company was downgraded one notch to Ba2 by Moody's Investors Service.
Moody's said, "It will be challenging for EMI to show meaningfully improved revenue and profits for the year against the backdrop of a still struggling global market for recorded music." In the wider market, the iTraxx Crossover index, made up mostly of "junk"-rated credits, was 3 basis points tighter at a 256 basis point mid-price in a quiet trading day.
"Apart from Corus, it has been one of the most painfully slow days of the year," the high-yield trader said. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 52.0 basis points more than similarly dated government bonds at 1458 GMT, 0.5 basis points less on the day.
Next week in the primary market, France's public postal service La Poste plans to sell a two-part euro benchmark-sized bond. Barclays Capital, Deutsche Bank, IXIS, J.P. Morgan and Natexis BP are joint bookrunners on the deal.
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