The prospect of a full take-over by its majority owner boosted debt of German chemicals maker Degussa, while Swiss engineer ABB rallied as it drew closer to a resolution of long-running asbestos problems.
Late on Monday, unlisted German mining group RAG, which already owns 50.1 percent of Degussa, said it would buy the 43 percent stake held by utility E.ON, confirming an earlier Reuters report. Degussa said RAG would also offer to acquire the 7 percent stake held by minority shareholders.
Degussa's bonds and default swaps, which have been buffeted by worries it could be the target of a debt-heavy private equity buyout, tightened on relief it would be owned by RAG, dealers said.
Five-year default swaps on Degussa were some 5 basis points tighter by 1345 GMT, at 130 basis points on a mid-price basis, a dealer said, after earlier trading as low as 125 basis points.
Also tightening was heavy engineering company ABB, after it received approval from a US bankruptcy court for a $1.4 billion settlement of asbestos claims, bringing it closer to resolving a problem that has dogged the firm for years.
The bankruptcy court in Pittsburgh, Pennsylvania, recommended the plan to the District Court, which still needs to approve the settlement before ABB can draw a line under its asbestos troubles.
ABB's US unit Combustion Engineering made industrial boilers lined with asbestos, which can cause cancer and other diseases.
The maker of industrial robots and electronic motors, which has a market capitalisation of $19.2 billion, expects its credit rating to return to investment grade within months of a final decision, restoring its financial credibility.
Five-year credit default swaps on ABB dropped about 3 basis points to 72 basis points on a mid-price basis, the dealer said. That price means it costs 72,000 euros a year to insure 10 million euros of the company's debt against default.
Credit analysts at Dresdner Kleinwort Wasserstein said the court's move brought the settlement "an important step closer" but warned that default swap levels already priced in a return to investment grade.
Analysts at SEB said: "ABB's operational performance and financial profile are already consistent with investment grade ratings. Once ABB receives final approval of its asbestos plan we are likely to upgrade our credit view of the company."
In a quiet wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 44.3 basis points more than similarly dated government bonds at 1355 GMT, 0.2 basis points more on the day.
Elsewhere, the cost of insuring debt in Ford Motor Credit, the finance arm of US carmaker Ford, against default rose, after Fitch Ratings cut the unit and its parent to "junk" late on Monday.
The downgrades will eject Ford's finance arm from the widely followed Lehman Brothers credit index, limiting the type of investors who can buy its bonds and raise its borrowing costs.