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Saturday, 21 October 2017

EFSF to pay up to get new deal away

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The EFSF has revived plans to come to the bond market after extreme volatility hit the issuer’s plans last week but will need to pay a triple digit spread over swaps to get the issue away.

The borrower has opened books for a EUR3bn maximum February 4 2022 issue which is expected to be priced later today. Transactions are in excess of €2bn, as of mid-morning in London. All orders are good within the guidance of 10bp area over the issuer’s outstanding 2021 issue.

Barclays Capital, Credit Agricole and JP Morgan are handling the trade. Initial guidance has been set at 10bp area over the issuer’s outstanding 3.375% July 2021 issue, which currently equates to 104bp over mid-swaps. At 104bp over mid-swaps, the spread the EFSF will have to pay for the new issue is almost 90bp wider than where it priced a 10-year deal in June this year.

The issuer has seen its spreads widen dramatically over recent weeks as fears over the changing nature of the credit. 

“When you look at the spread on EFSF’s 10-year, the yield has been rising dangerously to the point where they can’t issue and lend at cheap rates,” said Raphael Gallardo, head of macroeconomic research at AXA Investment Managers. “The market is already pricing in the fact that France’s Triple A rating is at risk and that the EFSF could be transformed in a monoline.”    

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