The cost of insuring the debt of Alliance Boots fell on Friday morning even as a bidding war erupted over the UK health and beauty group.
A consortium led by private equity firm Terra Firma raised its offer for Boots to £11.26 a share, topping an earlier recommended offer from private equity group KKR and Stefano Pessina, the Italian billionaire.
Still, the group’s credit default swaps, a kind of insurance against the non-payment of debt, was 5 basis points tighter on the day at a mid-price of 177.5bp, meaning that it costs €177,500 a year to insure €10m of the group’s debt against default in a five-year contract.
Market sources say the movement in the CDS market reflects uncertainty about what offer would result in more leverage. Some have raised questions about whether the company’s existing bonds may be bought back, making the CDS based on them, in essence, worthless.
Elsewhere, the CDS on Franco-Spanish cigarette maker Altadis – which has been in the spotlight all week — plummeted on rumours that a private equity bid for the group was now less likely. The five-year CDS on Altadis fell by a whopping 23bp to 64.5bp.
Traders pointed to a report by Bolsacinco, a financial website, which said Altadis had decided not to wait for a bid from its competitors or from private equity firms and would instead take measures to boost its share price.
The overall market was tighter, with the iTraxx Crossover index of junk-rated credits trading at 196.5bp, after closing at 200bp on Thursday.
