The cost of insuring Royal KPN NV (KPN)’s debt against default tumbled the most in more than five years after the biggest Dutch phone company said it’s raising 4 billion euros ($5.4 billion) in shares to shore up finances.
Credit-default swaps linked to KPN dropped as much as 31 basis points, or 17 percent, to 150, the biggest same-day decline since August 2007, according to data compiled by Bloomberg. Swaps protecting Virgin Media Finance Plc’s debt surged to the highest since July as the company confirmed it’s in talks with Liberty Global Inc. (LBTYA:US) for a “possible transaction.”
KPN is seeking to cut debt that has swelled to more than 12 billion euros, according to Bloomberg data, after investing 1.35 billion euros on fast-wireless spectrum in the fourth quarter. The Hague-based company said it may use equity-linked or other capital instruments to raise the cash it’s seeking. KPN’s 5.625 percent bonds due 2024 climbed 2.2 euro cents to 116.1 at 4:59 p.m. in London.
“A capital raising of this magnitude is positive for credit and would improve metrics enough for Moody’s and S&P to take the ratings off review for downgrade/negative watch,” Royal Bank of Scotland Group Plc credit analyst Matthew Baust told clients in a note. “With such negative operating trends this isn’t guaranteed and we would expect the ratings to remain at least on negative outlook.”
KPN, rated BBB by Standard & Poor’s and an equivalent Baa2 at Moody’s Investors Service, posted a net loss of 162 million euros in the fourth quarter, compared with a profit of 176 million euros a year earlier. The company, which also reported declining revenue, faces increased competition in the Netherlands after Sweden’s Tele2 AB (TEL2B) bought spectrum to enter the market.
KPN shares plunged as much as 25 percent in Amsterdam, the most since the start of trading in 1994, data compiled by Bloomberg show.
The cost of protecting the debt of Virgin Media Finance for five years rose 134 basis points to 384. The company’s 7 percent bonds in pounds due 2018 fell 1.3 pence, or 1.2 percent, to 105.5 at 5.44 p.m. in London, Bloomberg Bond Trader prices show, the lowest since Dec. 2011.
“A bid for Virgin Media would be a significant transaction for Liberty Global and due to its size we would expect any deal to take place in a ring-fenced structure,” ING Groep NV analysts told clients in a note.
A tie-up between Liberty Global and Virgin would provide a challenger to Rupert Murdoch’s British Sky Broadcasting Group Plc (BSY) in the U.K. pay-TV market. Liberty Global, owned by John Malone, is seeking to expand outside the U.S. and already runs pay-TV providers in Germany, Belgium and Switzerland.
Among new issues, Santander Consumer Bank AS will meet investors before a planned sale of euro-denominated senior unsecured bonds, a person with knowledge of the plans said. The company is guaranteed by Santander Consumer Finance SA.
In high-yield, French medical testing company Labco SAS plans to tap senior secured bonds due in 2018, a person with knowledge of the deal said.
In credit derivatives markets, the Markit iTraxx Europe Index of credit-default swaps linked to 125 companies with investment-grade ratings fell three basis points to 115. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly speculative-grade ratings declined seven basis points to 448.
The Markit iTraxx Financial Index of swaps on 25 banks and insurers dropped five basis points to 154.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.
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