Ryanair adopted its famous price-squeezing strategy on its latest bond offer on Tuesday, although at a cost to orders, which sky-dived compared with its last venture.
Lead managers BNP Paribas, CA CIB and Citigroup started marketing the eight-year benchmark euro deal at mid-swaps plus 80bp area, before setting guidance at plus 70bp area (+/-3bp) on books of around €3bn.
Final terms followed for an €850m size at swaps plus 67bp, but orders at that level fell to €2.75bn - less than half of the €6bn-plus blow-out book for Ryanair’s debut bond last June, an €850m seven-year that priced at 85bp over mid-swaps.
Leads agreed that the tighter terms this time had impacted demand.
“You could argue that pricing was quite aggressive. We had some drop out from the order book, but it was a very good book and it more than covered the targeted size, so we were happy,” said Colm Rainey, head of UK and Ireland origination in Citigroup’s DCM team.
Rainey said the debut deal constituted more “a voyage of discovery”, with investors establishing new positions in an unusual sector rather than adding to existing holdings.
Mark Lynagh, head of European corporate DCM at BNP Paribas, said the new deal had arguably priced flat to Ryanair’s theoretical curve and was “great value” for the company at only 7bp back on a headline basis from the 2021 debut deal.
Still some value
While initial talk had offered a 20bp pick-up to the 2021s, some investors said the deal still offered value at the pricing level, especially as the BBB+ (S&P/Fitch) rated issuer is viewed as more like a Single A name by some. Baa1/A-/A- rated Tyco Electronics, for instance, sold a €550m eight-year last week at mid-swaps plus 58bp.
Other comparables used to peg the deal included Lufthansa’s 2019s (Baa1/BBB-) at mid-swaps plus 64bp and Heathrow’s 2022s at 45bp-35bp, although this is a senior secured issue.
The paper is bid flat to reoffer on Wednesday morning at swaps plus 67bp using Eikon prices.
The proceeds will be used to purchase new aircraft and refinance €300m-500m of debt maturing next year. Investors said that during a recent call Ryanair had stated that it planned on being opportunistic due to the attractiveness of the market, however.
Citigroup’s Rainey said there was some debate about the timing of the deal, but that with QE coming, a strong market and a busy pipeline ahead, Ryanair wanted to skip the marketing phase and jump straight in, especially as it wants to become a more frequent borrower.
“As Ryanair becomes a more regular issuer, we’ll see the market become more familiar with its quasi-consumer credit characteristics, which will allow it to price at tighter and tighter levels,” Rainey said. “It’s a case of get it while you can.”
By region, the UK took 41%, France 20%, Germany and Austria 16%, Southern Europe 10%, Swiss 6%, Nordics 4%, Benelux 1%, and other 2%.
By account, asset managers bought 85%, insurance and pension funds 5%, bank and private banks 4%, central banks and official institutions 3%, hedge funds 2%, and other 1%.
