ProAssurance Corp said it would sell MEEMIC Insurance Company, its personal insurance business, to General Motors Corp's GMAC Insurance Holdings in a deal worth $400 million.
"There is no reaction in GMAC, but GM bonds are falling," said a bond trader in London. Traders said the market turned negative on GM because the acquisition gave them no indication of progress on the money-losing car maker's strategy to split off GMAC, so it can run efficiently.
One trader said the acquisition should have no impact on the profitable GMAC.
Moody's Investors Service already said on November 1 it could raise GMAC's Ba1 rating - which is higher than GM's B1 rating - if GM can sell a majority stake in GMAC.
Traders said General Motors' 8.375 percent euro bond due in July 2033 was half a point lower on the day at 73.25 percent of face value. But five-year credit default swaps on GMAC were unchanged at 250 basis points. That means it costs 250,000 euros a year to insure 10 million euros of GMAC debt against default.
Elsewhere in the credit market, 5-year default swaps on ABB tightened 4 basis points after Standard & Poor's said it could lift the Swiss engineering group's credit rating to investment-grade status after uncertainty over the group's pending asbestos settlement clears.
S&P put ABB's BB+ long-term and B short-term credit ratings on CreditWatch positive. The long-term rating is the highest in the "junk" category.
The agency said the move reflected "continuous improvement" in ABB's financial profile and capital structure in recent years.
At 1521 GMT, ABB's five year credit default swap was trading at 67 basis points.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 40 basis points more than similarly-dated government bonds at 1533 GMT, 0.5 basis points more on the day.
In the new bond pipeline, German consumer goods group Henkel said it planned to issue a hybrid bond worth roughly 1 billion euros ($1.2 billion) to help finance its pension obligations in Germany.
The Duesseldorf-based group said proceeds from the subordinated issue would go into a contractual trust agreement through which it would ring-fence a major portion of its pension obligations.
Henkel had some 1.5 billion euros in German pension obligations outstanding at the end of last year.
Joint lead managers BNP Paribas, Deutsche Bank and UBS said the bond would have a 99-year maturity, with a step-up in its coupon to encourage Henkel to buy back the bond after 10 years. The bond sale will follow a European investor roadshow starting on Thursday.