Bonds: Altadis CDS jump on bid talk

The cost of insuring debt on Franco-Spanish tobacco company Altadis continued to rise on Tuesday as talk that a private equity group was close to making a bid intensified.
Five-year credit default swaps on Altadis were eight basis points higher at 74 basis points in early trade, a trader said, citing media reports that Spanish saving bank Caja Madrid could help fund a 50-euro-a-share bid for Altadis from private equity group CVC.
CDS on Altadis had spiked higher on Monday on a media report that CVC planned to formalise a bid "imminently". "The funding is there and it looks as if Caja Madrid will be involved. So in addition to the news on Monday, it has given more confidence that there will be an offer," the trader said.
CVC has been looking for investment partners since private equity firm PAI withdrew from a joint bid in May. Their joint bid beat an earlier offer from Imperial Tobacco. An analyst at Unicredit, however, said Imperial Tobacco was a better fit for Altadis and was also a more likely scenario, although a successful bid from CVC could not be ruled out.
"If Imperial is successful, they would probably finance this deal partly debt and partly equity but the bid would probably be structured in a way that would preserve the investment-grade rating of both entities," the analyst said.
"If CVC acquires Altadis they may well split the company and sell bits and pieces of it which might trigger a redemption of the bonds," the analyst added. In index trading, the iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, held steady at 193 basis points by 0800 GMT, another trader said, despite soft US housing data on Monday.
There were few other standouts among single names, although the primary market remained active. British American Tobacco Plc has set guidance on a planned minimum 750 million euro 10-year bond at mid-swaps plus 60 to low-60s basis points. Pricing is expected on Wednesday.
Norwegian paper maker Norske Skog has also set guidance on a 10-year benchmark euro bond it plans to sell at mid-swaps plus 237.5 basis points area with pricing possible later on Tuesday.
Among other companies lining up new issuance later this week is telecoms network firm Ericsson which is expected to set guidance on a two-part euro bond mid-week. Proceeds from the bond will be used to refinance existing debt and for general corporate purposes.
French motorway operator ASF is also likely to set guidance on a planned euro benchmark bond later this week. Its roadshow ends in Paris on Tuesday. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 41.0 basis points more than similarly dated government bonds at 0820 GMT, 0.1 basis points lower on the day. In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz was steady at 4.488 percent. The 10-year Bund yielded 4.649 percent, 0.9 basis points higher. The 10-year euro swap rate was 4.935 percent.