Credit default swaps on Britain's EMI group, the world's third-largest music company, and British airports operator BAA rose on Monday, while the rest of the market marked time at the start of a busy week of US data.
The cost of insuring EMI Group Plc's debt against default rose, despite a report in the Times newspaper that it could reject a 2.5 billion pound ($4.95 billion) bid from private equity group Permira as being too low.
"I don't think people buy that," a trader in London said, adding that EMI remained a plausible candidate for a "true LBO" - involving splitting the company and assuming hefty debts - that could send its credit default swaps above 300 basis points. Five-year default swaps on EMI rose 5 basis points to 177.5 basis points, the trader said.
The cost of insuring debt from BAA against a default also rose, after sources close to Ferrovial said the Spanish construction-to-services group was considering splitting the British airport operator it bought this year into two parts to cut its debt costs. The sources said Ferrovial would group all of BAA's regulated businesses in one unit and its commercial activities such as shop rentals in another.
One of the sources also said that, depending on the outcome of a Ferrovial study and the possible impact a split could have on ratings, BAA may issue new bonds to finance future investments. Five-year default swaps on BAA rose about 3 basis points in early trading, before falling back to a 44.5 basis point mid-price, 1 basis point wider on the day, a trader said.
Europe's broader credit market was little changed, traders said, as it took a breather ahead of more US economic data due this week. The iTraxx Crossover index, a barometer for sentiment about riskier credit, tightened 1 basis point to 244.5 basis points, while the iTraxx Europe index was unchanged at 24.875 basis points.
The market will be focusing on the Institute for Supply Management's (ISM) non-manufacturing data on Tuesday, following last Friday's release of ISM manufacturing numbers, and on non-farm payrolls and University of Michigan consumer confidence data on Friday, for more clues about the state of the world's largest economy.
"Following last week's multitude of data, the economic calendar for this week is also rather busy," BNP Paribas analysts wrote in a note to clients. "Given the lower-than-expected ISM number, we expect the market to be more sensitive to this week's data than in recent months."
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 52.1 basis points more than similarly dated government bonds at 1606 GMT, 0.6 basis points less on the day.
Default swaps on Telecom Italia were unchanged at 65 basis points, a telecoms trader said, after Standard & Poor's said it was no longer considering cutting the company's BBB+ credit rating, on confirmation that the company had no plans to break up its main domestic assets. Italian telecommunications firm Wind [WAF.UL] plans to raise 1.67 billion euros ($2.22 billion) equivalent in a 5-year payment-in-kind loan denominated in euros and dollars, a banker familiar with the sale said on Monday.
The deal, the biggest ever of its kind, will refinance an existing payment-in-kind loan and fund part of the purchase of Enel's 26.1 percent stake in Weather Investments, the owner of Wind, the banker said.