The market is taking a well-needed rest today, after a glut of supply left investors fatigued on Tuesday. But it will not stay quiet for long, with syndicate officials preparing for more blow-out sessions before the week ends.
“The sheer weight of supply has resulted in more generous spreads; revisions have been smaller and new issue premiums bigger,” one said.
Another said today’s quiet session should put the market back on track for tomorrow, when a host of names are expected, including those expected from roadshows, as well as from other well-known companies.
Those anticipated tomorrow include US media company Discovery Communications, following an investor call this morning. The Baa2/BBB rated issuer mandated Credit Suisse and JP Morgan to arrange the call ahead of a euro-denominated deal.
Australian natural gas distributor APT Pipelines Limited is also wrapping up meetings today via BNP Paribas, HSBC, NAB and RBS, while US based manufacturer Mohawk Industries is expected in the coming days as well.
Meanwhile, Sweden’s state-owned utility Vattenfall has disclosed the details of its upcoming dual-tranche Swedish krona and euro benchmark hybrid deal, also expected on Thursday.
The krona tranche will have a maturity of 2077 and a first call date of 2022, and the euro tranche will have a 2077 maturity with a first call date of 2027. The hybrid is expected to be rated Baa2/BBB- and the anticipated equity credit is 50%.
Leads are Barclays, BNP Paribas, Citigroup, Danske Bank (B&D krona tranche), ING (B&D euro tranche) and SEB.
However, despite corporate hybrids being in demand in recent weeks, such paper has widened 6bp in the secondary market more recently, according to an ING credit note.
“The first days of QE were a clear manifestation of the ‘buy the rumour, sell the fact’ adage. Our credit traders see only sellers in the market and cash credit is widening out across the board.”
The year has got off to a slightly slower start for hybrids than previously expected, Andreas Michalitsianos, portfolio manager for JPM Sterling Corporate Bond Fund said.
“We expect plenty more to come this year, and quite possibly from first-time users from the oil and gas sector in Europe, as well as potentially from building materials companies. Traditional issuers in the market have been utilities and communication companies; both types of companies shouldn’t be ruled out as well from issuing more,” he added.
Geberit eyes two currencies
Geberit, rated A (positive) by S&P, has hired JP Morgan as global coordinator, with Commerzbank, HSBC, ING and JP Morgan as bookrunners to arrange investor meetings in France, the UK, the Netherlands and Germany from Monday March 16.
For their part, Credit Suisse, JP Morgan, UBS and Zuercher Kantonalbank will arrange a meeting in Zurich on Wednesday, March 18.
The issuance of euro and/or Swiss franc-denominated senior unsecured notes may follow.
Bookrunners on any euro deal will be Commerzbank, HSBC, ING and JP Morgan, while bookrunners on any franc transaction will be Credit Suisse, UBS and ZKB.
Geberit is a European market leader in sanitary technology.
Metro haunted by past transgression
German cash and carry group Metro was haunted by its previous bad bond market form on its new issue on Tuesday after investors dropped out of the book when guidance was revised tighter.
Metro tested interest for a 10-year deal only four months after its last foray that left investors irritated over aggressive price revisions.
Leads started marketing the new benchmark at swaps plus 90bp-95bp, before guidance slightly tighter at plus 85bp-90bp on books of €1.25bn.
However, when leads Citigroup, ING, LBBW and SG set final terms of plus 85bp for a €600m size, orders fell to €1bn.
The paper was quoted 4bp wider after pricing, according to Tradeweb, despite offering a healthy concession that should have gone some way in making amends for its previous foray.
“We had some price sensitive accounts drop out, but the trouble is that Metro doesn’t have much far out on the curve, so investor work had to be done with the 2021 paper, which makes it tricky to determine fair value,” a lead banker said.
He said the issuer’s aim this time around was to sell a €500m deal at an attractive price, and saw the opportunity to do that amid the low interest rate environment.
Metro (rated BBB- S&P stable) managed to obtain €100m more than its desired funding target, at a 5bp-10bp premium, according to the lead. That was based on Metro’s January 2019 deal bid at plus 43bp and its October 2021 at plus 49bp.
“There is some investor fatigue due to the sheer weight of supply we’ve had and the multi-billion trades that have been coming to market,” said another lead. “For those smaller euro issuers looking to do a smaller sized deals, it can be tricky to get investors’ attention in a crowded market.”
Metro lost €150m worth of orders on its just-covered €500m seven-year deal in October after it tightened guidance, and the deal then widened 10bp on the break.
On Tuesday’s deal, Southern Europe was given 38%, Germany and Austria 35%, France 15%, Switzerland 5%, the UK and Ireland 2%, Benelux 2% and others 3%.
By account, asset managers were allocated the lion’s share, taking 64%, banks and private banks 18%, insurance and pensions 17% and others 1%.
Energy duo print small benchmarks in crowded market
Finnish oil refining company Neste Oil and Spanish energy company Enagas managed to gather enough investor interest for small benchmark deals on Tuesday despite competing supply.
Investor fatigue due to the onslaught of primary deals this week, as well as varying concerns from investors about both deals, did not prevent the companies attracting books that were three-times subscribed.
One portfolio manager said Enagas’ prompt return to the market after pricing a €600m 10-year deal in January was expected to trigger some switch-trading activity – its February 1.25% 2025 issue was bid nearly 5bp wider on Tuesday on the news of the supply.
“The pricing for Enagas looked OK but we have exposure already, so we had to pass. It’s a bit disappointing that they’re back in the market so soon after they came with a 10-year bond in January,” one portfolio manager said.
Leads started price talk on a €400m no-grow eight-year offering at mid-swaps plus 60bp area, before guidance at plus 55bp area (+/-2bp, will price in the range). Final terms were announced at plus 53bp on demand of €1.5bn.
A lead said that on announcing final terms a few more accounts put in last minute orders before books were closed, reinforcing the current appetite for Spanish credits.
This should be welcome news for unrated Spanish engineering firm ACS, which is planning its return to the market next week after pulling a €500m five-year bond in July last year.
BBVA, BNP Paribas (B&D), CaixaBank, Mizuho and Natixis were active bookrunners on Enagas’ new deal, while Banca IMI, CA CIB, Citigroup, Mediobanca, Santander GBM, and SG CIB were passives.
By account type, asset managers took 62%, insurance companies 19%, banks and private banks 16%, official institutions 2% and others 1%.
By region, France was allocated 29%, Spain 28%, Nordics 10%, Germany and Austria 9%, Benelux 8%, the UK 6%, Italy 4% and other 6%.
Meanwhile, Neste Oil priced a €500m seven-year despite some investors feeling cautious over sector risks and overcrowded market conditions.
One corporate energy investor said that participating in Tuesday’s unrated deal would have been too big a hurdle amid such heavy supply.
“The company has Russian exposure, single asset risks on their main refining assets and increasing capex. The fact that they’re a European refiner (and over-capacity remains in this market) made it an easier deal to pass on,” he said.
Despite the perceived risks, the issuer managed to attract orders of €1.4bn, allowing it to eventually upsize the deal.
Price talk started at mid-swaps plus 190bp area for an expected €400m size, before leads Barclays, CA CIB, Danske Bank (B&D) and MUFG set guidance at plus 180bp (+/-2bp, will price in the range).
Final terms were announced for €500m at plus 178bp.
Neste held a European roadshow last week, where pricing feedback was around mid-swaps plus the high 100s to 200bp area, according to investors.
Leads saw a low double-digit new issue concession relative to the company’s outstandings.
By type, asset managers took 41%, insurance 41%, pension funds 8%, banks and private banks 6%, hedge funds 3%, and other 1%.
By region, Finland was allocated 28%, Italy 24%, France 15%, UK 8%, Holland 7%, Switzerland 4%, Germany and Austria 5%, Iberia 4%, and others 5%.
