IFR DCM Special Report 2013
Party time: Appearances can certainly be deceptive. While it felt for all the world that 2013 was frantically busy in the debt capital markets, Thomson Reuters data actually show that overall volumes for the first nine months fell 3% to US$4.2trn.
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Much of this can be laid at the feet of the US. Concerns about when the Fed would embark on tapering of its quantitative easing programme were followed in late September by the run-up to October’s US government shutdown caused by squabbles surrounding the debt ceiling. The impact was evidenced in Q3 issuance that was 13% lower than that of Q2.
Indeed, the year has been characterised by famine-to-feast-to-famine lurches, as relatively lean periods were interspersed by bouts of activity that bordered on the insane.
This was often defined by multi-tranche mega deals in the US market, the prime examples of which were Apple’s US$17bn April offering, which seized the crown as the largest bond issue ever seen, but which was superseded by Verizon’s US$49bn just five months later.
Verizon’s deal was the main reason September 2013 became the all-time busiest month for issuance at US$143.7bn. This trumped the US$135.1bn issued the previous November.
Those two massive trades showed there was appetite for rare, well-rated, one-off deals, but there was further encouragement to be derived from the rehabilitation of the European periphery throughout the year.
Ireland and Portugal were welcomed back into the fold, while perhaps more telling was the recent appearance of Spain and Italy at a time when the US deadlock was still to be resolved and market participants could have been excused for feeling nervous.
Nerves didn’t come into it. The two attracted €22bn of demand for a combined €9bn of paper.
And the very same week, there was something for non-believers, with the EFSF’s permanent successor, the European Stability Mechanism, selling its inaugural transaction to great acclaim. So, there’s a backstop just in case the current optimism turns out to be misplaced.
But it was not just the sovereigns that found themselves welcomed back into the fold. Peripheral banks (some, certainly not all) also found themselves able to fund in the public markets, with covered bond and senior unsecured issuance topped off with an Additional Tier 1 deal from Banco Popular Espanol.
With the European Central Bank about to carry out an asset quality review of banks – ahead of stress tests in partnership with the European Banking Authority – the landscape for the whole banking sector, not just the periphery, could be about to take on a rather less peaceful look.
The corporate market, which has mopped up a lot of the excess cash, could again be on hand to step into the breach. This year has already seen the hybrid sector come of age through EDF’s multi-tranche, multicurrency €6.25bn-equivalent offering as investors searched for yield in what is still a relatively low-yield environment.
And the asset class also broadened its reach beyond the utility borrowers that have become dominant with the appearance of VW, while America Movil and Hutchison Whampoa displayed an appetite in Europe for overseas credits.
Talk is even that securitisation could be a way in which to unlock SME funding.
A rehabilitation of the ABS prodigal? Only time will tell.