Credit spreads on German corporate HeidelbergCement, a producer of building materials, widened by more than 20 basis points last week as the market speculated on the financing details of a takeover bid by Spohn Cement. Traders said it was unclear how Spohn Cement will finance the proposed acquisition and how this will affect HeidelbergCement's debt. The uncertainty has triggered a spate of protection buying on the name.
Five-year credit-default swaps referenced to HeidelbergCement ballooned 24bps, to 279bps on Wednesday from 255bp the week before. One month ago before the bid was announced spreads were steady at 125bps. "Investors don't know how the debt will be serviced or how bond holders will react," one trader noted.
Matthias Hellstern, analyst at Moody's Investors Service in Frankfurt, said there are worries because one of the major shareholders of HeidelbergCement is German billionaire Adolf Merckle who also has close ties with Spohn Cement. "Markets fear that the debt necessary to finance the bid will hit the company," he said. "But, Spohn Cement's managing director has said publicly it is not his intention to push the debt down and he intends to support the strategy of the current management, so there seems to be some confusion."
Moody's gives HeildelbergCement a rating of Ba1 and has placed it on watch for possible downgrade. The company is rated BB plus by Standard and Poor's.
