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By Natalie Harrison
LONDON, June 12 (IFR) - Kabel Deutschland's euro bonds roseon Wednesday after Vodafone said it had made an offer to buy thebusiness, although the move was relatively contained followingmonths of speculation over a possible takeover.
KD's 6.50% July 2017s were almost a point higher at 107.50bid, while the 6.50% June 2018s were about half a point higherat 106.25, according to Tradeweb. In spread terms, the movesequate to around 16bp and 13bp tighter versus swaps.
Sources told Reuters in February that British mobileoperator Vodafone was weighing a EUR10bn bid for the Germancable company to expand its services in Europe's biggesteconomy.
"If Vodafone was to acquire KD it would be a credit positivefor the KD bonds, as the parent company would be stronger," saidMalin Hedman, a credit analyst at ING.
"This is especially the case as Vodafone has previouslycommented that it may be prepared to take a one-notch creditratings downgrade if it chose to do acquisitions."
Vodafone is rated A3/A-/A- by Moody's/S&P/Fitch, while KD isBa2/BB by Moody's/S&P.
The moves in Vodafone's bonds and CDS were less pronounced,partly because it is not clear how Vodafone would finance thedeal. The company could, for example, use a recent dividend itreceived in May from its 45% stake in Verizon Wireless.
Vodafone may receive more cash if Verizon, its partner inthe business, buys its stake. Verizon has made no secret of itsdesire to do so in a multi-billion dollar deal that would be oneof the largest of all time. In April, Reuters reported thatVerizon was preparing a USD100bn bid for the stake.
"There is no smoke without fire," said Hedman.
The cost of insuring Vodafone's debt against default roseslightly, however, on expectations that Vodafone could alsoincrease debt to fund the acquisition of KD.
By 0820GMT, the company's five-year CDS was 3bp wider atabout 83.5bp, underperforming the broader credit market wherethe iTraxx Main was about 1bp tighter.
Its benchmark euro bond curve was quoted around 1-4bp widerversus swaps, according to Tradeweb.
Shares in KD rose 7% to EUR79.90 while Vodafone shares were4.9% lower at 182p.
