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Tuesday, 12 December 2017

EFSF leads the way for public sector issuers

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  • Logo of the European Financial Stability Facility

The European Financial Stability Facility is set to lead the way for public sector issuers this week having mandated Credit Suisse, Deutsche Bank and Societe Generale for a no-grow €3bn three-year benchmark.

The deal will be the issuer’s first attempt to raise funds in syndicated format since a long 10-year struggled over the line in November and will be a key trendsetter for the market. The borrower successfully raised €1.971bn through a three-month T-Bill in December as it sought to diversify its sources of funding.

“The technical are strong: there is a lot of money to be put to work, January is always a busy month for public sector issuers and banks loaded up at the ECB three-year LTRO at the end of last year, all of which should give a good backdrop for the deal,” said a syndicate banker on the deal.

The lead managers will hold an investor call on Wednesday morning and will decide whether to go ahead with an issue or not in the evening. Any deal will need to come on Thursday as it is a bank holiday on the continent on Friday.

There are no price thoughts at this stage, although the lead managers will look at the issuer’s outstanding 2016 issues in order to establish relative value. EFSF’s July 2016 and December 2016 bonds are currently trading in the mid 40s over mid-swaps.

“EIB’s curve between three and five-year is around 10bp, so without a new issue premium, fair value would be around 35bp,” the syndicate banker said.

A banker away from the deal said that he expected pricing to be in the context of where the five-year issues are currently trading.

The last transaction from Europe’s bail-out fund barely got enough orders for the €3bn size and had to price much wider than the previous deals, causing concerns that its access to the market was restricted. A combination of extreme volatility and the ever-changing nature of the borrower discouraged investors from getting involved.

The proceeds of the new bond will be used towards the financial assistance programmes for Ireland and Portugal. How much the EFSF will have raise on behalf of Greece has yet to be finalised.

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