The cost of credit protection for German chemicals company Degussa rose on Thursday as its majority shareholder considered raising its stake, while tourism firm TUI was on track to sell a 1.0 billion euro bond on Friday.
The cost of insuring debt in Degussa against default was higher as dealers fretted over the potential impact of majority owner RAG, the German mining group, buying out a minority stakeholder.
Five-year credit default swaps on Degussa stood at 58 basis points late on Thursday, after earlier widening to as much as 64 basis points.
That means it cost 580,000 euros a year to insure 10 million euros of the company's debt against default on Thursday, 4,000 euros more than Wednesday.
Newspaper reports have said the unlisted RAG, which holds about 50 percent of Degussa, could fund its purchase of E.ON's 43 percent stake by selling Degussa units such as its construction chemicals business.
"It's the uncertainty - if there was a break-up, no one knows what kind of company you'd end up with, but there's always a risk it could be worse-rated and higher leveraged," said a dealer.
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 41.3 basis points more than similarly-dated government bonds at 1538 GMT, 0.6 basis point more on the day.
General Motors recovered in the European credit markets from declines on Wednesday and on Thursday morning after Bank of America said it would rather not buy the car giant's finance arm.
General Motors' 8.375 percent euro bond due in July 2033 was half a point higher on the day at 68.75 percent of face value.
"Autos are a little better. They are retracing the losses," said a trader in London.
GM finance unit GMAC's credit default swaps were unchanged on the day at 440 basis points. The price has tightened about 20 basis points since Thursday morning after the Bank of America comments.
GM plans to sell a majority stake in GMAC so the financing arm can regain an investment grade rating and access cheaper funds.
It cost 440,000 euros to insure 10 million euros of GMAC debt against default on Thursday.
In the new bond market, TUI AG, Europe's biggest tourism firm, is set to sell 1.0 billion euros of high-yield bonds on Friday to help fund its acquisition of container shipping company CP Ships, a banker familiar with the sale said.
The sale comprises 700 million euros of senior notes, split into a five-year floating-rate note yielding 170 to 180 basis points over Euribor and a 7-year fixed-rate note yielding 187.5 to 200 basis points over swaps.
TUI will also sell a 300 million euro hybrid perpetual note callable after seven years with a yield of around 8.75 percent.
This is the first issue by a high-yield borrower of hybrid bonds, which combine features of debt and equity.