Mergers and acquisitions hogged the limelight in the European credit market on Thursday, with British broadcaster ITV taking centre stage as a private equity bid waited in the wings.
The cost of insuring against an ITV default rose for a second day, after a Financial Times report that Apax Partners, Blackstone and Goldman Sachs had a favourable shareholder response to an approach that would lead to a rise in debt.
ITV rejected the approach but traders were less than convinced, marking up its cost of default protection to 130 basis points near the close, around 15 basis points more on the day.
"We are pretty sure that this is a serious bid," a trader said. "At 130 basis points the CDS is at about the right level." ITV shares closed 1.6 percent lower at 126 pence.
Default swaps on Pilkington were volatile as investors mulled the possible implications of the glass maker's imminent take-over by Nippon Sheet Glass.
Five-year protection traded in a 12 basis point range, as investors gauged whether Pilkington would provide a guarantee for new debt used to fund the purchase.
If there is no guarantee, and with just one 2008 bond outstanding, the cost of default insurance will fall because of the slim chance of a default on the single short-dated bond.
In the end, with no clear answer emerging, five-year protection was little changed.
Concern over the deliverability of bonds into CDS contracts after a take-over has risen after it was discovered earlier this week that default swaps on Britain's Rentokil did not cover new debt issued by a related but distinct entity.
In a similar vein, the cost of credit protection on media group WPP fell as people tried to identify whether a name-change in November 2005 could affect the company's debt.
Five-year credit default swaps on WPP fell as much as 10 basis points in early trade, but also ended little changed. "Someone made this suggestion and then sold it down to 24, but they were wrong," said a trader.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 48.6 basis points more than similarly dated government bonds at 1621 GMT, 0.8 basis points less on the day.
Rumours of a possible bond buyback at Allied Domecq, bought by France's Pernod Ricard last year, sent its cost of default protection tumbling 6 basis points to 55.5 basis points, said a trader, although "there is no sign a buyback is going to happen".
Still, in a generally strong market investors needed little encouragement to add risk, and the high yield space was a beneficiary, seeing tightening spreads across all sectors, said another trader.
Default swaps on Basell, the world's biggest producer of polypropylene, moved 15 basis points tighter to be bid at 395 basis points, he said. The iTraxx Crossover index, a benchmark for the sub-investment grade market, was 5 basis points tighter at midday at 283 basis points. Swiss chemicals maker Clariant on Thursday sold a 600 million euro ($724 million) seven-year bond, the banks managing the sale said.
The bond was priced at 99.628 with a coupon of 4.375 percent, to give a spread of 86.6 basis points over German government bonds or 72 basis points over swaps, ABN Amro, Citigroup and UBS said.
The bond is larger than the 500 million euros initially planned, and came at the tight end of guidance of 72 to 75 basis points over swaps, itself revised from earlier guidance of 75 to 80 basis points over, all a sign of strong demand.
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