The cost of insuring debt of TDC against default jumped on Thursday as talk of a debt-heavy leveraged buyout of Denmark's biggest telecoms operator intensified.
In the wider market, spreads edged wider, as European equities dipped amid worries of interest rate rises that would crimp economic growth and with a dip in oil prices pressuring energy stocks.
Default swaps on TDC soared after newspaper reports it had asked advisers Goldman Sachs to start talks with two rival groups of private equity funds that are bidding for the firm.
Credit investors are wary of leveraged buyouts (LBOs), where private equity funds load a target's balance sheet with debt, knocking its creditworthiness.
Five-year credit default swaps (CDS) on TDC rose 40 basis points to 265 basis points on a mid-price basis, a telecoms trader said, meaning it costs 265,000 euros a year to insure 10 million euros of the company's debt against default. "You never know, because at the end maybe Deutsche Telekom or Swisscom could come in and pay more, but I think there's maybe a 40 percent possibility now that TDC will be an LBO," the trader said.
TDC was the most actively traded credit in Europe's credit default swap market in both August and September, according to broker GFI, jumping from a low of 81.5 basis points to 230 basis points.
"Sentiment is weak today and the market is slightly wider. TDC is a pretty negative story for the market," a second trader said.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 37.1 basis points more than similarly-dated government bonds at 1437 GMT, 0.4 basis points more.
The iTraxx Crossover index, used as a barometer of sentiment in the high-yield market, was trading at 294 basis points on a mid-price basis, some 6 basis points wider on the day.
Elsewhere, the cost of insuring debt in Cadbury Schweppes Plc, the world's largest confectionery group, against default rose after it warned rising costs meant it was unlikely to meet its profit margin goal for the year.
Five-year CDS on Cadbury rose 2 basis points to 30 basis points on a mid-price basis, another trader said.
Bonds in automakers - one of the largest sectors of Europe's corporate bond market - were little changed, with dealers focused on a possible solution to the problems of Delphi, the largest US auto parts supplier. "Everyone's just waiting for the Delphi situation to be resolved," an autos trader said.
Delphi is in talks with former parent General Motors and the United Auto Workers union, and has said it may have to file for bankruptcy by October 17 if the two do not aid in a bailout.
GM's 8.375 percent euro bond due in July 2033 was little changed, bid at 79 percent of face value, he said. After deals on Wednesday from France Telecom and ITV, the primary market was looking spartan again, although banking sources close to the deal told Reuters that Milanese utility AEM was considering issuing a hybrid bond.
AEM may issue the perpetual, subordinated bond worth between 500 to 750 million euros at the end of 2005 or early 2006, the sources said, making it the first Italian company to use the novel structure.
Analysts often cite utilities as likely candidates for issuing hybrid bonds, because of their regulated nature, high cashflow and capital expenditure, and solid credit ratings.
Comments
Comments are closed.