Telecoms remained in focus in the corporate bond market on Friday as fears built over a debt-heavy buyout of Denmark's TDC and Britain's Cable & Wireless forecast of falling revenues.
Spreads on TDC widened throughout the day after both Moody's Investors Service and Standard & Poor's said late on Thursday they could cut the company's ratings by multiple notches into non-investment-grade territory if the company were bought by private equity.
Five-year default swaps on TDC were at 290 basis points by 1430 GMT, some 25 basis points more on the day.
"We've seen a lot of Street buyers of protection," said one telecoms trader. "I think for a few days people have been pricing a deal as a certainty, but now they're working out what the leverage would be on the new structure.
"They could lever it up to the eyeballs and it could trade at 450 (basis points)," he said.
Bonds of Cable & Wireless fell after it forecast a 6 percent drop in first-half revenue at its core UK business, pushing its shares down almost a fifth to their lowest level in eight months.
The Cable and Wireless 8.625 percent bond due in 2012 traded 1.5 points weaker bid at 107.5 percent of face value, a trader said. Five-year default swaps on Britain's second-largest fixed-line telecoms firm were 17 basis points wider, the trader said, at 178 basis points bid.
"Cable & Wireless are weaker against the background of a pretty weak market overall," he said.
The iTraxx crossover index traded 5 basis points wider at 295 basis points late on Friday, the trader said.
Elsewhere, the retail sector was softer with the cost of credit protection on GUS and Kingfisher worst hit, amid continuing concern over weakening consumer demand in Britain, Europe's second-largest economy.
Five-year protection on both firms was 2 basis points wider on Friday, a trader said, with Kingfisher 10 wider on the week at 61 basis points and GUS 8 basis points wider on the week at 50 basis points.
Bonds of Marks & Spencer were stable, the trader said, alongside Sainsbury's, five-year default swaps on which were little changed bid at 79 basis points after the company posted a third straight quarter of sales growth in the second quarter.
Bonds of General Motors Corp were largely steady in Europe even after the Detroit News said in a report citing a confidential "update" to United Auto Workers members that parts maker Delphi could file for Chapter 11 bankruptcy as soon as Friday.
Five-year default swaps on GMAC were around 10 basis points wider at 510 basis points, a trader said.
"After the September sales, people realised there were a lot of shorts out there, and you don't want to be the last one to cover. Considering Delphi's stock is off 30 percent and its bonds are down 5 points, it's holding up quite well," he said.
Delphi stock was down 30.91 percent as of 1458 GMT at $1.51.
Privately owned INEOS is raising 9.9 billion euros of debt arranged by Merrill Lynch, Morgan Stanley and Barclays Capital to finance its purchase of BP's petrochemical unit Innovene, sources close to the matter said on Friday.
The deal is the biggest-ever leveraged buyout in Europe, the sources said. Banking sources told Loan Pricing Corporation, Reuters' syndicated loans unit, that the financing would include a large high-yield bond.
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