News that Irish phone group Eircom would open its books to cash-rich Swisscom boosted its debt on Tuesday, but dented confidence in Danish peer TDC, as investors bet it left TDC more vulnerable to private equity predators.
Sources close to the matter told Reuters Eircom would open its books to the Swiss operator after agreeing an indicative offer valuing it at more than 2.6 billion euros ($3.1 billion).
Both Eircom and Swisscom declined to comment on any deal, which would come amid a flurry of telecoms deal-making after years of restructuring since the dotcom era over-expansion.
For bondholders the key question is whether deals will be debt-heavy leveraged buyouts (LBOs) or sector consolidation. The latter would inflict less damage on company creditworthiness.
The cost of insuring Eircom's debt against default fell, as dealers digested the benefits of a possible acquisition by the deep-pocketed Swisscom.
Five-year credit default swaps on Eircom fell about 10 basis points, bid at 65 basis points, traders said, meaning it costs 65,000 euros a year to insure 10 million euros of the company's debt against default.
"There's speculation that even if it's not eventually Swisscom, this is going to attract some other bidders to the asset; this might just be the beginning of the fun and games," said one telecoms trader.
But credit protection costs rose on Danish peer TDC, with five-year default swaps on TDC widening about 15 basis points, bid at about 290 basis points.
Sources have said two private equity consortia are circling TDC, and traders said Swisscom's approach to Eircom meant it was less likely to step in to any bid battle for TDC.
"If Swisscom went for Eircom, they probably wouldn't practically be able to buy TDC as well," a second trader said.
Elsewhere in the telecoms sector, short-covering helped boost bonds, he added, with Telecom Italia's 50-year bond due 2055 trading three basis points tighter, bid at 184 points over government debt.
In the wider market, the iTraxx Europe index of 125 investment-grade credit default swaps inched 0.25 basis points tighter, bid at 36.75 basis points, while the ITraxx Crossover index, used as a barometer of sentiment in the high-yield market, stood three points tighter, bid at 291 basis points.
Trading in auto bonds was thin. Credit default swaps on General Motor's finance arm GMAC widened for the first time this week after a lower opening in US stocks.
At 1554 GMT, GMAC was 10 basis points wider at 260 points, while parent GM's 8.375 percent euro bond due in July 2033 eased 0.125 points to 72.875 percent of face value.
In the primary market, France's Lafarge became the latest name to join a roster of investment-grade borrowers that have come to market this month.
Lafarge, the world's largest cement producer, plans to sell a 500 million euro ($591 million) bond due March 2016 this week, an official at one of the banks managing the sale said.
BNP Paribas, Calyon, HSBC and RBS are managing the sale. Its proceeds will be used for general corporate purposes and to help repay an Oceane convertible bond that matures in January 2006.
And Kingfisher, Europe's top home-improvements retailer, kicked off investor roadshows for its benchmark euro bond. The 7- to 10-year deal, via BNP Paribas, Royal Bank of Scotland and Societe Generale, is set to price next week.
Comments
Comments are closed.