The cost of insuring debt in Casino against default fell sharply on Thursday, after the French supermarket group unveiled a big asset sale programme and set itself more stringent debt ratio targets.
Bucking a trend of European companies tolerating lower ratings for the sake of growth and shareholder rewards, Casino said it would sell 2 billion euros of assets by the end of 2007, earning an upgrade to its rating outlook from Standard & Poor's.
"The asset disposal programme is very big - it's exactly what the debt-holders wanted to see. (Casino CEO and Chairman) Mr Naouri for once seems to be reasonable and to look reality in the face," a credit trader in Paris said.
Casino said it would refocus its activities on France and fast-growing overseas markets like Latin America, and would unwind a complex equity swap set up in 2001.
It pledged to cut its net debt to below 2.5 times its earnings before interest, depreciation and amortisation (EBITDA) by the end of 2007, from a ratio of 3.5 times at the end of 2005.
S&P raised the outlook on its BBB- rating on Casino - one notch above "junk" - to negative from stable, saying the disposals would "substantially reduce its debt burden."
Five-year credit default swaps on Casino built on earlier gains after S&P's move, to stand at 95 basis points from 107 basis points, some 25 basis points lower on the day, a trader in London said.
"In our view this news is more positive than either the equity or credit market was hoping for, but it does tally with our previous comments that Casino cannot maintain investment grade ratings without making asset disposals in 2006," analysts at Dresdner Kleinwort Wasserstein said in a note to clients.
Elsewhere, the cost of insuring against a default by Corus fell as the company met forecasts for 2005 earnings and said it planned to sell its aluminium rolled products and extrusions businesses for 826 million euros.
Five-year credit default swaps on Corus tightened some 10 basis points to 155 basis points, a trader in London said.
J.P. Morgan analyst Anindya Mohinta said the valuation of the aluminium deal was much higher than expected. That move fed through to the iTraxx Crossover index, used as a barometer of sentiment in the high-yield market, which reached 247.5 basis points by 0840 GMT, some 2.5 basis points lower.
"We're at new tights again," another trader said. "It's been helped by the Dow as well, which rallied quite significantly after we went home yesterday. And some of the underlying is going a bit tighter."
Traders have said the impending roll to a new series of iTraxx contracts on Monday means there is little demand to buy protection at present, leading CDS prices to grind ever lower.
In telecoms, a recent rally petered out.
"It's basically stasis," a telecoms trader said. "Ahead of the roll no-one really wants to buy protection, but equally there's not particularly attractive levels for the risk being taken at the moment."
KPN's 850 million euro 4.5 percent 7-year bond, which it sold last week, stood little changed, bid at 97 basis points over German government Bunds, after rallying about 10 basis points since last Friday.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 48.9 basis points more than similarly-dated government bonds at 0928 GMT, 0.4 basis points less on the day.
In the primary market, Tesco, Britain's biggest supermarket chain, was poised to detail final price and size guidance on a four-part euro and sterling bond sale worth 1 billion pounds, a banker familiar with the deal said.
In underlying government bond markets the yield on the interest rate sensitive two-year Schatz was 3.211 percent, 1.1 basis points more on the day. The 10-year Bund was yielding 3.681 percent, 0.7 basis points more. The 10-year euro swap rate was 3.856 percent.