The cost of credit protection on Saint Gobain rose on Wednesday, while its bonds slipped, amid concern the French building materials maker's bid for Britain's BPB Plc would leave it loaded with debt.
The cost of default protection on Saint Gobain traded as much as five basis points wider after it emerged late on Wednesday that the company was raising a 9 billion euro loan for its bid and debt refinancing.
That suggested it was unlikely to be put off by BPB's early rejection of its approaches, a trader in London said.
"The fact they have gone and got extra financing suggests they are not going to be put off and are intent on winning this battle," the trader said. "We may see some further widening before buyers come back to Saint Gobain."
Five-year credit default swaps on Saint Gobain were bid three basis points wider at 33 basis points at around 1445 GMT, the trader said. That means it costs 33,000 euros to insure 10 million euros of the company's debt against default.
The contracts have widened around 11 basis points since news of the bid first emerged on July 21.
Bonds of Saint Gobain also fell, its 4.75 percent note due July 2009 trading 2 basis points wider bid at 34 basis points over Bunds.
The company launched a hostile 3.68 billion pound ($6.55 billion) take-over bid for BPB on Wednesday after the British plasterboard maker spurned its earlier proposed offers.
The French glass and buildings materials maker said it had tried to engage BPB in meaningful negotiations three times but had failed to agree a deal.
BPB advised shareholders to reject the "unwelcome" offer. BPB shares jumped 3.8 percent on news Saint-Gobain had gone hostile, but its bonds were little changed, another trader said.
Elsewhere, bonds of major US automakers were little changed or lower as investor concerns over profits outweighed better-than-expected sales figures published late on Tuesday.
General Motors Corp posted a 19 percent rise in July sales. It was the first among the Detroit car giants to offer an "employee discount for everyone" programme, which has aided the world's largest automaker in gaining market share and clearing 2005 models.
Ford, running a similar incentive scheme, reported its first gain in sales in over a year. The number two US car maker said sales increased by 35.5 percent from a year ago.
General Motors' 8.375 percent euro bond due in July 2033 traded a percentage point lower bid at 87.5 percent of face value, while Ford's 4.875 percent euro bond due in January 2010 was little changed bid at 94 percent of face value.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 37.1 basis points more than similarly-dated government bonds at 1610 GMT, 0.2 basis points less on the day.
Still, long-dated telecoms continued to languish, a trader in London said, with spreads pushing a couple of basis points wider on the day.
"The market drifted wider again this morning, tried to come back this afternoon, but it's been very, very quiet," said the trader.
Telecom Italia's 5.25 percent euro bond due 2055 was bid at 174 basis points over government bonds by 1500 GMT, he said.
Basell, the world's biggest polypropylene producer, plans this week to price a high-yield bond worth 1.1 billion euros ($1.34 billion) to yield 8.5 to 8.75 percent, an investor considering buying the bonds said on Wednesday.
The bond will be denominated in dollars and euros, with the dollar part totalling at least $600 million, the investor said, citing a document from lead manager Merrill Lynch.
The deal is one of a string of high-yield bonds that are expected to be launched in the coming months in the European markets to finance large leveraged buyouts.
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