The cost of default protection on KPN rose on Thursday after Standard & Poor's cut its outlook on the Dutch telecoms group following its purchase this week of 500 million euros ($588.8 million) of its own shares.
Five-year credit default swaps on Italy's Autostrade also widened amid speculation it would win its bid for the French government's stake in motorway toll operators APRR, ASF and Sanef.
The cost of insuring KPN's debt against default rose as much as 5 basis points to 71 basis points, a trader said, before retracing in later trade to about 69 basis points. That means it costs 69,000 euros a year to insure 10 million euros of the company's debt against default.
"A few names are moving where there is specific news, but generally it's quiet," said one trader.
Standard & Poor's cut its outlook on KPN to negative from stable, saying a recent policy of increasing debt had put pressure on its A- credit rating.
"The rating action reflects incremental increases in leverage over the past six months, bringing KPN's leverage credit metrics to a point that is not fully commensurate with the ratings," S&P credit analyst Michael O'Brien said.
"The group's most recent share repurchase has confirmed this trend, with total shareholder returns for 2005 now in excess of expected free operating cash flows of at least 2.3 billion euros in 2005."
Five-year protection on Autostrade widened 3 basis points, to 32 basis points, ahead of a French government announcement expected before December 12 on its auction of stakes in France's road toll operators. Autostrade is among the favourites to win the auction, analysts have said.
Also weaker was UK airport operator BAA, after Standard & Poor's and Moody's Investors Service said they might cut its ratings if it succeeds in acquiring Budapest Airport, which is being privatised.
Earlier on Thursday, BAA topped the bidding to buy the Hungarian airport with an offer of $2.15 billion for a 75 percent minus one share stake, more than the $2 billion that had been expected. BAA's 5-year default swaps traded 2 basis points wider at 30 basis points, a trader said.
S&P said it had put BAA's A+ corporate credit rating on CreditWatch negative, and said it was likely to cut the rating by one notch to A if the transaction was completed.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 41.7 basis points more than similarly dated government bonds at 1530 GMT, unchanged on the day.
Corporate issuance has fallen in December after a rush of issuance in November, with the sole euro-denominated deal now under way an exchange offer for sanitation, pest-removal and maintenance services company Ecolab Inc.
Ecolab has set the spread range on the new bonds due 2012 that it plans to issue in exchange for existing 2007 bonds at 45 to 50 basis points over swaps, the banks managing the deal said. Ecolab is offering to exchange up to 200 million euros of its 300 million euro 5.375 percent bonds due 2007 for new fixed-rate 2012 notes, Barclays Capital and J.P. Morgan said, and plans to issue 300 million euros of new notes.
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