Bond market sails through $6.44 billion supply rush

11 Nov, 2006

The market absorbed 5 billion euros ($6.44 billion) worth of new bonds from French utility Veolia, Britain's Imperial Tobacco and Canadian train and airplane maker Bombardier on Friday, as the companies capitalised on strong demand.
The deals topped off a week of around 8 billion euros ($10.3 billion) worth of corporate issuance and there is a bulging pipeline of deals still to come.
In the secondary market, the iTraxx Crossover index widened some 4 basis points to 241 basis points, a trader in London said, as the market found a range after the rollercoaster ride of tightening and widening earlier this week.
"We've seen a few buyers of protection, but not many," the trader said. He said he believed the market could now move between a high of 245-250 basis points and a low of 235-237 basis points without fresh fundamental news to drive it wider or tighter.
But the cash bond market continued to show appetite, swallowing a 1.9 billion euro equivalent two-part bond from Imperial Tobacco - the sector's largest since 2002 - and a 1.0 billion euro deal from Veolia.
In the high-yield market, Canada's Bombardier was the latest in a string of multi-billion dollar deals to hit the market, as it sold a slightly larger-than-expected 1.9 billion euros worth of bonds to refinance debt.
In secondary trading, British broadcaster ITV's credit default swaps flip-flopped within a 10 basis point range, before settling at 145 basis points, 5 basis points wider, on continuing speculation about a possible tie-up with cable operator NTL, a second trader said.
Moody's Investors Service said a merger with NTL would put "significant negative pressure" on ITV's ratings, while Fitch Ratings said ITV bondholders will have some protection from the transaction due to the change of control language in some of their bonds.
"ITV CDS would also not look too pretty given NTL is likely to remain in the ball park of mid to low single B territory, albeit deliverability issues would come into play," Royal Bank of Scotland analysts wrote in a note to clients. "We expect to see rumours of rival bidders, most likely private equity, emerging in the next week or so."
The trader said ITV remained volatile as a result. "It's been all over the place today. All the media names are slightly wider on ITV worries and EMI, though the EMI story is not very credible," he said.
Credit default swaps on EMI, the world's third-largest music company, were choppy in a 10 basis point range, before settling at an unchanged 160 basis points, he said, on talk that Microsoft is interested in the company. Traders reported volatility in credit default swaps on Anglo-Dutch steelmaker Corus, although there appeared to be little fresh news driving the move.
Five-year credit default swaps tightened to around 160 basis points on Friday afternoon from 180 basis points early in the session, one market participant said. Corus Chief Executive Philippe Varin on Friday defended the 4.3 billion pound agreed take-over offer from Tata Steel, saying it was a good offer from the right partner.
He said it was not up to him to comment on possible counteroffers. "With regard to counterbids, every passing day makes that less likely," said Rick Mattila, a credit analyst at Dresdner Kleinwort. "We haven't heard anything from any of the widely touted candidates."
Even after this week's heavy corporate issuance, more remains in store. Greek telecom OTE finished roadshows for its planned two-part deal worth up to 1.5 billion euros on Friday. Next week, bankers are working on roadshows for Belgian telecom Belgacom, the world's largest cruise-operator Carnival, British advertising heavyweight WPP and Portuguese toll-road operator Brisa.

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