Vodafone was under pressure in the European credit markets on Tuesday after the British telecommunications giant said growth would slow in 2007 amid weakening margins. Five-year credit default swaps on Vodafone traded 2 basis points wider at 27 basis points, a trader said, and its bonds fell.
"Bad news for Vodafone, but they are one of the only credits moving," he said. "There is trading going on but very little direction."
Although Vodafone reiterated full-year forecasts for revenue growth of 6 to 9 percent, it said half-year margins fell and unveiled a more cautious forecast for 2007.
Free cash flow, mobile revenue growth and mobile EBITDA margins outside Japan will be lower than in 2006, it said.
Elsewhere, speculation that Vodafone may move to raise its stake in SFR, France's second-largest wireless telecoms company, dampened enthusiasm for Vivendi Universal, which generates 50 percent of its operating profit from SFR.
Five-year protection on Vivendi was volatile, a trader said, before it settled 2 basis points wider at 44 basis points.
Among troubled US autos, General Motors and financing arm GMAC (GM.N) continued their recent trend wider with GMAC 10 basis points higher on the day, bid at 375 basis points. GMAC rose as high as 400 basis points earlier on Tuesday.
Investors raised expectations for upgrades of GMAC credit ratings in recent weeks on speculation that it would split from its loss-making auto arm, but the lack of news on a move has prompted some to turn negative once more.
"Nobody wants to take too much risk at this point," said Suki Mann, a strategist at Societe Generale. "It has already been a choppy year."
The Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average of 39.7 basis points more than similarly dated government bonds at 1535 GMT, 0.2 basis points more on the day.
Debt of Danish telecoms firm TDC was little changed, Mann said, after weakening early on Tuesday due to a newspaper report that a group of private equity firms could bid for the company within days.
The Wall Street Journal, citing people familiar with the situation, said that the group was finalising the price it planned to offer and the structure of the potential deal.
Earlier, default swaps on TDC had broken through the 300 basis point barrier to trade at 302.5 basis points on a mid-price basis, 15 basis points wider, a trader in London said.
Kingfisher Plc, Europe's top home improvements retailer, on Tuesday sold a 550 million euro seven-year bond, a banker familiar with the sale said on Tuesday.
The bond, priced at 99.399 percent of face value, yields 78 basis points over swaps, in line with the latest guidance but tighter than the 80 basis points area originally indicated. A tighter spread is usually a sign of good demand.
A syndicate official at one of the banks managing the sale said that the order book built to over 1.2 billion euros, while the bond was trading 1 basis point tighter than at launch during the afternoon.
The inclusion of a clause that allows investors to sell the bonds back to the company if there is a take-over that reduces its ratings to "junk" status allowed Kingfisher to save on interest costs, he said.
"A deal without a change of control would have had to come at 90 basis points over," he said.
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