The cost of insuring debt of Britain's GUS against default fell on Monday after the company said it planned to tender for its 350 million pounds ($652.9 million) of 5.625 percent bonds due 2013.
The move, which a source close to the situation said may be designed to pre-empt potential court action by bondholders, follows a protracted battle over GUS's debt ahead of a planned demerger.
GUS's two businesses - credit checker Experian and the Argos Retail Group comprising general retailer Argos and home improvement chain Homebase - will split apart in October. Five-year credit default swaps on GUS fell 8 basis points, to 36.5 basis points, a trader said. "This is the because of the tender offer, because of the GUS-Experian demerger. It's the buyback, deliverability story again," he said.
Five-year credit default swaps on Boots were 1 basis point wider at 38.5 basis points, he said, after Standard & Poor's and Fitch Ratings cut the British retailer's credit ratings. S&P and Fitch cut their rating on Boots one notch to BBB, two notches above "junk", with a stable outlook after its merger with Alliance UniChem.
Alliance Boots began its first day of dealing as the UK's largest combined pharmacy, wholesale and retail stock on Monday. S&P said the outlook for Alliance Boots was stable but warned that the arrangement in which Alliance Unichem became a direct subsidiary of Alliance Boots has led to "uneven access to the group's assets for lenders".
It said it would cut Alliance Boots ratings one notch further, if there were no "valid remedy to the structural subordination situation within three months".
Elsewhere, five-year credit default swaps on Arcelor tightened 2 basis points to be bid at 51 basis points after Moody's Investors Service cut its ratings one notch to Baa3 and affirmed Mittal Steel's Baa3 rating with a stable outlook.
"No one knows for sure why it's tightening. All I can say is that people were expecting a downgrade of one or two notches, and the downgrade was only one notch," a second trader said.
Network Rail, which owns Britain's rail infrastructure, said it was to begin raising money without a government guarantee. Network Rail, set up in 2002 to replace the failed Railtrack, forecast it would borrow another 3.2 billion pounds over the next three years to fund investment. Its existing bonds, which will retain the backing of the government guarantee until maturity, are not counted as government debt.
"We believe that the planned issuance of unguaranteed debt will be supportive for Network Rail's existing debt. Firstly, the existing debt will continue to benefit from a financial indemnity. Secondly, the amount of guaranteed debt will shrink over time as more and more of the company's government-backed debt matures," Royal Bank of Scotland analysts wrote in a note to clients. The spread on Network Rail's 4.875 percent sterling bond due 2015 was unchanged, bid at 23 basis points over Gilts, a third trader said.
"This is about the guarantee on forthcoming issues, so current debt is not affected at the moment," he said. In a quiet trading day, sentiment was slightly stronger, an index trader said, with the iTraxx Crossover index, made up mostly of "junk"-rated credits, tightening 2 basis points to a 268.5 basis point mid-price.
"Quiet is an understatement," he said, "There's been very little flow." In the wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 54.0 basis points more than similarly-dated government bonds at 1441 GMT, 0.2 basis points less on the day.
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