The cost of insuring German cement maker HeidelbergCement's debt against default fell on Wednesday, after Moody's Investors Service affirmed the company's credit rating and gave it a positive outlook.
Moody's late on Tuesday affirmed the company's Ba1 credit rating - the highest level of "junk" - and gave it a positive outlook, following the acquisition of a majority stake by Spohn Cement, a vehicle for German billionaire Adolf Merckle, earlier this year.
Moody's cited the strength of the company's business, its expectations for improved cash flow and profitability and an improved balance sheet profile.
Analysts at Dresdner Kleinwort Wasserstein said the positive outlook was surprising but they thought Moody's must have had access to Spohn's debt management plans.
"As such, the risk of very negative credit outcomes as a result of the Spohn take-over has now reduced, in our opinion, even if risks in the name are still higher than prior to the take-over bid," they wrote in a note to clients.
Five-year credit default swaps on HeidelbergCement were about 30 basis points tighter than on Tuesday afternoon, at 120 basis points on a mid-price basis, a trader said.
That means it costs 120,000 euros a year to insure 10 million euros of the company's debt against default.
In a quiet wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 37.0 basis points more than similarly dated government bonds at 1522 GMT, 0.3 basis points less on the day.
The iTraxx Crossover index, used as a barometer of sentiment in the high-yield market, tightened 3 basis points on the day to 296 basis points.
The cost of insuring Ahold's debt against default also fell for a second day as dealers keen to increase their exposure to the Dutch retailer sold credit protection.
Five-year credit default swaps on Ahold tightened 2-3 basis points to 129 basis points on a mid-price basis, a second trader said, after tightening 5 basis points on Tuesday.
Elsewhere in a quiet market, debt in French advertising group Publicis and rival Havas rallied slightly, traders said, as investors scaled back concerns about the outcome of Publicis's preliminary talks to buy UK media buying and planning firm Aegis.
Telecoms bonds were subdued, although Portugal Telecom's bonds softened slightly, after Moody's on Tuesday cut its outlook on the company's debt to negative from stable.
Portugal Telecom's 4.5 percent bond due June 2025 widened one basis point, bid at 142 basis points over government debt, a telecoms trader said.
In an otherwise muted primary market, German state development bank KfW [KFW.UL] sold a 5 billion euro ($6 billion), three-year bond, wrapping up its euro benchmark programme for the year.
The bond is the largest deal sold by KfW this year, and drew orders of 7.1 billion euros from 180 accounts, with investors keen to take on paper in a maturity in which supply has been relatively low. Europe accounted for 82 percent of orders.
The bond pays a coupon of 2.50 percent and was sold to yield 7 basis points over German government debt, joint lead managers BNP Paribas, Citigroup and Lehman Brothers said.
In the high-yield market, Greek mobile phone operator TIM Hellas has set price guidance on a two-part bond worth 1.28 billion euros ($1.54 billion) that it plans to sell this week, a market source said on Wednesday.
TIM Hellas plans to sell 925 million euros worth of 7-year floating-rate notes to yield 350 basis points over Libor and 355 million euros worth of 8-year bonds to yield 8.75 percent, the source said. The notes will be denominated in both euros and dollars.
Pricing is due on Friday, the source said.
TIM Hellas is issuing the bonds to finance its acquisition earlier this year by Apax Partners and Texas Pacific from Telecom Italia. J.P. Morgan and Deutsche Bank are managing the sale.