A wave of news on possible and actual mergers and acquisitions put the focus back on individual borrowers in the European market on Thursday after several sessions of largely technical index trading.
The cost of insuring the debt of British music group EMI against a default fell after the company said it had rejected a bid approach as it did not fully reflect EMI's prospects and value.
EMI said on November 28 it had received a bid approach and a source familiar with the situation said private equity firm Permira had made contact, sparking fears in the credit market of a debt-heavy buyout. Five-year credit default swaps on EMI fell 25 basis points to 152 basis points, a trader in London said, on relief that the approach has been rejected.
Credit default swaps on Rentokil Initial against a default rose on talk of a possible private equity bid for the British services group. But traders were sceptical about a possible deal. Five-year credit default swaps on Rentokil rose 15 basis points to a 75 basis point mid-price. "I personally don't believe it, my researchers don't believe it and my clients don't believe it," a second trader said.
Some were more cautious. "It's difficult to tell, it's just a rumour. But then the market we're in... M&A is so rampant at the moment, you have to be careful because anything can happen," the first trader said.
Elsewhere, the cost of insuring against a default by German broadcaster ProSiebenSat.1 rose after sources familiar with the matter said private equity firms Kohlberg Kravis Roberts and Permira had agreed to buy a controlling stake in the company. Five-year credit default swaps rose 20 basis points to 200 basis points, a third trader said.
Elsewhere, the cost of insuring the debt of Swedish telecoms firm TeliaSonera against default rose after Sweden's centre-right government said it would ask permission from parliament to reduce its stakes in a number of leading Swedish firms in which it is a shareholder.
The government said it would seek permission to sell holdings in Nordea, OMX, SBAB, TeliaSonera, Vasakronan and Vin & Sprit. Five-year credit default swaps on TeliaSonera widened 3 basis points to 45.5 basis points, a third trader said. In the wider market, the iTraxx Crossover index, a barometer for sentiment about riskier credits, was 1 basis point tighter, at 228 basis points, the third trader said, while its sister HiVol index of 30 high-spread investment-grade CDS was "a touch wider" at 46.5 basis points.
"The tone is pretty solid, but there's not really any clear direction," he said. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 51.3 basis points more than similarly-dated government bonds at 1538 GMT, unchanged on the day.
In the high-yield market, Greek mobile phone operator TIM Hellas set talk on a 1.4 billion euro four-part bond that will recapitalise the business and pay a dividend to its private equity owners.
The company has scrapped plans for a fixed-rate tranche of notes and will instead sell a mixture of euro- and dollar-denominated floating-rate notes, a banker familiar with the sale said. Pricing is expected either on Friday or on Monday, the banker said.
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