The cost of insuring KPN's bonds against default rose on Thursday, as investors sold the company's debt in anticipation of new bonds that will provide them with extra protection against take-overs.
The Dutch Telecoms group announced it was planning to sell at least 850 million euros ($1 billion) worth of bonds containing a change of control covenant that would allow investors to redeem the bond at par if a take-over sends its credit rating to "junk"."Investors are likely to sell out of the existing debt because the inclusion of the change-of-control covenant gives them a better deal," a trader said.
Bondholders are increasingly demanding protection as European companies attempt large debt-funded take-overs and private equity firms amass record funds for leveraged buy-outs (LBOs).
Five-year credit default swaps on KPN traded 4 basis points wider, bid at 89 basis points, the trader said, meaning it cost 89,000 euros to ensure 10 million euros of KPN debt against default.
KPN's 4.5 percent euro bond due July 2011 widened 10 basis points, bid at 115 basis points over equivalent government bonds, he added.
KPN plans to sell euro and sterling bonds to finance the repayment of paper maturing in April and July, the company said.
Elsewhere in the telecoms market, Deutsche Telekom was little changed after its results, traders said, with 5-year credit default swaps bid at 43 basis points, one wider on the day.
Deutsche Telekom reported a 10 percent rise in fourth-quarter earnings before interest, tax, depreciation and amortisation (EBITDA). Europe's biggest telecoms group has reined in its net debt from about 74 billion euros at the end of June 2001 to 38.6 billion euros at the end of 2005.
CFO Karl-Gerhard Eick told reporters Deutsche Telekom wants to maintain a single A credit rating, but would tolerate a slight slip if that helped the company grow.
The cost of insuring GM's financing arm General Motors Acceptance Corp (GMAC) against default rose 10 basis points bid at 500 basis points, traders said.
"Everyone's talking about the weaker-than-expected auto sales and production figures and the possible strike at Tower Automotives," one trader said.
The credit default swaps of British Airport operator BAA operator tightened 7 basis points, bid at 83 basis points, a trader said, despite news that Ferrovial's unsolicited bid could be imminent.
"It widened a bit earlier in the day, but it seems like the market's shrugged off this news," he said.
In the wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 49.1 basis points more than similarly dated government bonds at 1611 GMT, 0.9 basis points higher on the day.
VOLKSWAGEN BOND BUY-BACK German carmaker Volkswagen will buy back about 1.1 billion euros of 2009 and 2013 bonds, dealer-managers Commerzbank, HSBC and Societe Generale said, after less than a quarter of the shorter bond's owners took up VW's tender offer.
Volkswagen had offered to buy back any and all of its 2 billion euros of May 2009 bonds, as well as some of its May 2013 bonds, up to a total of 2 billion euros across the two maturities.
But it received tenders worth just 419.29 million euros for the 2009 bonds, or about 21 percent of bonds outstanding, while it received 685.35 million euros of tenders for the 2013 bonds.
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