EURO CORP: Investment-grade blackout shines light on high-yield

The blackout period ahead of the bulk of the European corporate earnings season kept a tap on investment-grade primary activity on Friday, sending issuers and investors into an early weekend after a bustling week.

The last five days have seen almost €4bn and £800m of new bonds hit the market including credits from the automobile, telecoms and energy sector and from a range of geographies.

“Issuers recognised that investors are sitting on a lot of cash and seized the moment,” one syndicate banker said.

The iTraxx Main index has tightened by about 5% since last Friday, and by around 20% since last month, further encouraging issuers to make the most of being able to price at relatively tight spreads.

By 10:45 GMT, the iTraxx was trading 2.75bp tighter at 132.5bp while the Crossover index had contracted by 11bp to stand at 569bp, having earlier this week broken through the psychologically important 600bp mark.

The highlight this week included a deal executed by Italian holding company Atlantia, rated A3/A–/A–, whose primary asset is Autostrade per l’Italia.

On Thursday, the company mandated a sizeable group of banks, including BNP Paribas, Goldman Sachs, JP Morgan, Mediobanca, RBS, Santander and UniCredit to run a seven-year €1bn deal that attracted a chunky €8bn in demand.

“The deal was timed to opportunistically take advantage of the positive market tone and demand for peripheral paper seen in the past weeks,” Rupert Lewis, syndicate banker at BNP Paribas said.

“Issuers recognised that investors are sitting on a lot of cash and seized the moment”

Atlantia was the first corporate from a periphery, with revenues almost entirely generated in the domestic market, to issue a bond this year.

Interpolating its outstanding curves, the new deal offered a new issue premium of just around 10bp, bankers both on and away from the deal said.

By Friday morning the bond was trading at mid-swaps +260bp, around 15bp tighter on reoffer.

High-yield demand flares up

The upbeat sentiment and momentum has also encouraged high-yield investors to jump back on the issuance wagon and investors have responded positively.

On Thursday, the size of the bonds backing the buyout of Orange Switzerland by private equity group Apax were increased and the bank facility cut, following strong demand from investors. The size of the three-part bond was upped by SFr150m equivalent to SFr700m-equivalent.

It consist of a SFr425m senior secured bond maturing in May 2019, which has been increased from SFr325m, and a €225m subordinated bond maturing in February 2020, which has also been increased from around €185m. A new €150m floating rate note (FRN) was also added, on the back of reverse enquiry from collateralised loan investors.

Overall leverage will increase to 3.8 times from 3.6 times as a result, bankers on the deal said.

Price talk on the senior secured Swiss franc tranche has been set at 7%–7.125% yield and at 8.5%–8.75% on the euro subordinated tranche.

Price talk on the FRN has been set at three-month Euribor plus 525bp–550bp, with 1-2 points of original issue discount (OID).

Books were expected to close on Friday morning.

Credit Suisse is the global co-ordinator on the deal, while Citi, JP Morgan and Morgan Stanley and Deutsche Bank are bookrunners.

Also on Friday, a €600m senior secured high-yield bond backing the buyout of Swedish alarms group Securitas Direct was announced.

The news of the transaction comes more than seven months after the US$3.3bn buyout of the business by private equity firms Bain Capital and Hellman & Friedman was disclosed.

A European roadshow for the deal begins on Friday and last through to Tuesday. Morgan Stanley and Goldman Sachs are global co-ordinators, while Bank of America Merrill Lynch, HSBC, Nomura and Nordea joint bookrunners. The bond carries a September 2018 maturity and will be issued by a vehicle called Verisure Holding.

The leveraged buy-out was initially expected to be financed by approximately €1.4bn of high-yield bonds, consisting of a near €1bn senior secured tranche and a €395m subordinated portion.

That latter bond was replaced by a mezzanine loan, after high-yield bond markets slammed shut in July and banks were unable to shift the debt off their books.

Promising roadshows

Back in the investment-grade market, the blackout period will likely stave of some corporate supply next week too, bankers said on Friday, but not keep the primary market completely dry.

Israel Electric, rated Baa3/BB+, on Wednesday mandated Barclays Capital and UBS to arrange a series of investor meetings in London, New York and Boston which kicked off on Thursday. A US dollar-denominated deal will likely follow, banks on the deal said.

International fund management business FIL Limited on Monday mandated Barclays Capital and JP Morgan to arrange a series of fixed income investor meetings this week too.

Similarly to Israel Electric, a capital markets transaction may follow subject to market conditions, the group said.

Finally, in Asia, German specialty chemicals concern Lanxess is hitting the road with Bank of America Merrill Lynch, Deutsche Bank and Standard Chartered to market a potential offshore renminbi-denominated bond. The company will be meeting investors on Thursday and Friday with a deal announcement expected afterward depending on market conditions.