CORPORATE BONDS: Investors pile in as Greek burden lifts

European investment-grade corporates resurfaced in primary markets on Tuesday, with rare Triple-B issuers ThyssenKrupp and Securitas drawing combined demand of almost €10bn as hysteria over Greece faded following its €130bn bailout.

FGA Capital – a joint venture between Fiat and Credit Agricole Consumer Finance that specialises in auto loans – was also on track to price a deal later today.

German steel group Thyssen closed books on a €1.25bn five-year around midday with more than €7.5bn of orders, while Securitas had notched up demand in excess of €2bn for a €350m deal of the same maturity, despite disappointing results from both companies earlier this month.

The pick-up in activity follows a €1.25bn three-year from GE Capital a day earlier and a €500m three-year from German automaker Daimler a week ago, which was the last European issuer to venture into the euro-denominated capital markets.

Credit indices were marginally wider on Tuesday despite relief that a messy Greek default has been averted, but syndicate bankers said that was largely due to the recovery in spreads that began on Friday.

By 12:50GMT the iTraxx Main index had widened by 1.25bp to 132.75bp, while the Crossover stood at 574bp, 4bp wider but way off the 650bp level hit last week.

“We’ve had a great start to the year, volumes are up, and that should now continue. The market is feeling rock solid. Investor demand is massive, and there is not enough supply,” said one syndicate banker.

Another banker said the Greece bailout is not a massive game changer.

“When you look into the details it is not going to be an easy walk in the next few months,” he said, referring to higher-than-expected haircuts for Greek bondholders and approval from national governments that is still required.

“Having said that, there is clearly deep liquidity and market conditions should be more stable going forward.”

The final spread on the Securitas trade was set at mid-swaps plus 125bp, which was refined from initial price thoughts of around 130-140bp. Citi, ING and SEB are expected to price the deal later today.   

ThyssenKrupp, Germany’s biggest steel maker, set the final spread on the February 2017 bond – its first euro-denominated benchmark bond since February 2009 – at mid-swaps plus 280bp, which was well inside initial price thoughts of plus 300bp area.    

SECTOR VOLUMES RISE, CYCLICAL THYSSEN BLAZES

European corporate bond fundraising so far in 2012 is up 83% over the same period a year ago, according to Thomson Reuters data, in a sign that tough rules are restricting bank lending and driving more companies to seek funding in capital markets.

European investment-grade and high-yield corporates have raised a combined US$75bn equivalent, a level that has been surpassed only once in the last decade, back in 2009, when year-to-date volumes were US$135.6bn.

January 2012 saw US$48bn raised, the strongest month since March 2011 when volumes reached US$50bn, and with a week to go until the end of the month, February issuance is already up 68% over February 2011.

The new ThyssenKrupp bond, which attracted orders from more than 500 accounts, will be the largest outstanding euro-denominated bond on the issuer’s curve and is also one of the largest issues from a Crossover credit in the last 18 months.

The new issue premium on the bond, being managed by BNP Paribas, Commerzbank, RBS and UniCredit, was estimated at around 40bp at initial price thoughts, but the tightened guidance, first to plus 280-290bp and then to plus 280bp, reduced that drastically.

One of the leads highlighted the group’s June 2014 issue at about swaps plus 200bp prior to the announcement, and a February 2016 at plus 250bp. Extrapolating those two would indicate that the new paper is around fair value.

The new February 2017 bond will extend the issuer’s curve beyond its current longest-dated deal, the €1bn 8.5% February 2016, which was the issuer’s last venture into the euro market three years ago. That was bid at mid-swaps plus 260bp, according to Tradeweb, after widening by about 13bp after the new mandate was announced.

One of the syndicate bankers on the deal said BBB-/Baa3 rated steelmaker Arcelor Mittal’s 4.625% €1bn November 2017 was also used as a comparable for pricing. That was bid at 266bp over mid-swaps, according to Tradeweb.

ThyssenKrupp, rated Baa3/BB+/BBB-, last week revealed a surprise €357m operating loss in the final quarter of 2011 due to weak demand, and agreed to sell its struggling stainless steel unit in January.

The company’s shares were trading 3.2% lower on Tuesday, in a broadly flat equities market, on broker recommendations to sell the stock.

SECURITAS EYES FAVOURABLE BASIS SWAP

The February 2017 Securitas bond, meanwhile, will extend the issuer’s curve beyond its €500m April 2013 issue, which is its only existing outstanding benchmark.

Securitas, rated BBB+ by S&P, will use the proceeds for general corporate purposes and also for pre-funding, although the issuer is also taking advantage of favourable arbitrage between euros and Swedish Krona.

One syndicate banker on the deal, being led by Citi, ING and SEB, said the issuer was also looking to diversify funding away from banks into capital markets, as Nordic governments set new capital rules for its banks which are considered more stringent than Basel III.

The Securitas 2013 bond, issued back in January 2009 and maturing in around 13 months, is relatively illiquid. It is bid at 104.95 and mid-swaps plus 31bps, according to a banker on the trade, although Tradeweb is quoting the issue at plus 80/55bp.

The banker said it was hard to quantify the new issue premium, but said that leads had looked at several comparables including other Swedish companies such as bearings manufacturer SKF, hygiene and paper products maker SCA and Swedish Match, as well as UK catering company Compass Group.

SKF, rated A-/A3, has a €500m 3.875% May 2018 bond which is currently bid about 83bp over mid-swaps, while A- rated Compass Group’s €600m 3.125% February 2019 deal is bid at 102.5bp over.

Securitas shares tumbled earlier this month after the company’s fourth-quarter profit slid well below expectations and sales growth slowed as restructuring in a European market squeezed by the sovereign debt crisis bit into margins.

Organic sales growth slipped to 2% in the last quarter of 2011 from 3% in the previous three months.

FGA Capital, rated Baa3/BBB/BBB+, is also in the market with a €500m no-grow two-year benchmark through Credit Agricole CIB, Citigroup and Unicredit.  

The books opened at guidance of 5.50% area for pricing later today. FGA Capital was last in the market in late March 2011, again with a €500m two-year that priced at mid-swaps +190bp on the back of around €1.8bn of demand. An indicative level on that trade currently is around swaps +330bp bid for a yield of 4.54%.