Corus Repurchasing Debt

Corus which was recently acquired by Indian Tata Steel is offering a share repurchase worth 800 million euro due in 2011. The company would buy back these bonds at 101% of the face value of the bonds. This means that they will be paying 101% + 1.375% (accumulated interest) for these bonds. The investors showed negative reaction to this because the face value of the bonds was at 106.5%, much lower than what was offered by Corus. Due to this the five-year credit default swaps on Corus rose 10 basis points to 133 basis points on the news. Credit default swap is a type of insurance where in case of default by the borrower the swap buyer will end up paying for the debt, which was unpaid. The credit derivative market is concerned that the credit default swaps would be useless if the investors redeem the underlying debt.