European Corporates: Air France-KLM takes off (free content)

4 min read
Laura benitez

Air France-KLM started marketing a debut hybrid bond on Wednesday wider than had first been anticipated, after spending a nervy three days on the runway.

The unrated borrower is expected to issue at least €300m of perpetual non-call five hybrid bonds, with initial price thoughts announced at 6.5% yield area. This is roughly equivalent to 620bp over mid-swaps.

The yield was then set at 6.375%, with the deal expected to price at a discount, on the back of €1.1bn of orders. The deal size is still at €300m plus, with books closing at 1230 GMT.

Air France-KLM initially pegged price thoughts on the debut hybrid bond in the 5%-6% yield area with a size of around €500m, although some investors attending the London roadshow last week thought an 8% level was more fitting.

“This has been struggling; they’ll probably get it done but it will only be French investors in the book,” the investor said this morning, before the marketing process began.

Air France-KLM’s outstanding senior bonds have widened since the company announced its intention of doing the trade. Its 3.875% 2021s were bid at an I-spread of 330bp on Wednesday, around 30bp wider than last week, according to Tradeweb.

At roughly 620bp over mid-swaps, the hybrid is coming around 290bp back of the company’s senior debt, which is wider that what other rated companies have had to pay. The premium versus senior has ranged between 200bp and 290bp.

Air France-KLM mandated BNP Paribas, Deutsche Bank and Morgan Stanley as structuring advisers, as well as Credit Agricole CIB and Natixis as global coordinators and bookrunners.

Elsewhere, three other borrowers, ranging from Triple B to Single A, are trying their luck with investors, despite the European credit market opening wider for the third time this week.

SAP is back in the market to fund the rest of its €7.4bn acquisition of Concur Technologies. The German business software manufacturer made an initial foray back in November.

SAP, rated A2/A, started marketing a triple-tranche deal, comprising a €500m (expected) two-year floater at initial price thoughts of three-month Euribor plus 25bp area, a €500m (expected) five-year floater at three-month Euribor plus 40bp area, and a euro benchmark 10-year fixed tranche at mid-swaps plus 55bp-60bp.

Pricing was then revised as follows: the two-year FRN is set at Euribor plus 20bp area (+/-3bp, will price in the range), the five-year FRN is Euribor plus 30bp-35bp (will price in the range, and the 10-year fixed is swaps plus 50bp-55bp (will price in the range).

One high-grade investor who looked at the deal this morning said pricing was too tight for it to be tempting.

“High-rated, long-dated, low-beta paper has underperformed recently as dealer balance sheets have struggled with the profit-taking, so there is a lot of cheap paper like SAP out there already,” he said.

Based on SAP’s outstandings, including its November 2018 paper bid at 19bp over Euribor, its November 2019s at mid-swaps plus 24bp and February 2023s at mid-swaps plus 30bp (all pre-announcement), a banker away from the deal placed fair value at 16bp, 35bp and 40bp, respectively.

SAP announced its plans to acquire US-based spend management software maker Concur Technologies in mid-September 2014 and took out a €7bn credit facility, made up of a €4bn bridge loan and a €3bn term loan to finance the deal.

Leads are BofA Merrill Lynch, Deutsche Bank and JP Morgan.

UK-based company Anglo American Capital (rated Baa2/BBB) is also in the market, with a euro benchmark five-year deal.

Barclays, HSBC, MUFG, Mizuho, and Santander announced initial price thoughts at mid-swaps plus 135bp area, before guidance was set at plus 130bp-135bp as orders topped €1bn.

Finally, Northern Powergrid (A3/A-/A) has emerged from its roadshow last week to begin marketing a £150m April 2025 bond at initial price thoughts of 115bp-120bp over the mid-price yield on the 5% March 2025 Gilt. Leads managers are Lloyds, RBS and Santander.

An Air France Airbus A319 passenger jet