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Bonds

Chanel finds runway success in novel approach

In a sign of how the ESG bond market is moving into the mainstream, Chanel opted for a sustainability-linked deal to make its debut on Thursday, securing a €600m dual-tranche offering that received acclaim from investors. With a growing focus on sustainability from investors across the globe, corporates have been eager to showcase their ESG credentials through financial markets transactions with various labels and targets. In the case of Chanel, which was guaranteeing the notes issued by Chanel Ceres, the French fashion house opted for a sustainability-linked bond instead of a more conventional green bond. "We like the Chanel SLB, and one of the reasons why we like it is they actually use as a framework for this issuance a climate scenario certified by science-based targets," said Felipe Gordillo, senior ESG analyst at BNP Paribas Asset Management. "Clearly, that's best practice, and we'd like to see more." Unlike the other four sustainability-linked bond (or KPI-linked bond) deals issued since Italian utility Enel debuted the format in dollars and euros last year, Chanel's doesn't include a step-up coupon if the KPIs aren't met. Instead, the company will pay a cash premium at maturity if it fails to meet its key performance indicator targets. In its case these indicators include pledges to transition to 100% renewable electricity for its operations by 2025 and to cut emissions by 50% by 2030. If it misses those targets it will pay cash premiums of 50bp on the 2026 tranche and 75bp on the 2031 tranche at maturity, said a banker at one of the leads. "What is needed for this market to become more mature is to have the companies which don't have the best carbon profile today but are truly committed to creating an impact," said Gordillo. "They can use this to raise awareness and to create a financial incentive whereby if they don't meet the target there is a risk to the company's cost of funding. The market will show a positive evolution if it's not just the best-in-class companies issuing these bonds." The Chanel bonds were sized equally across a long five-year and long 10-year. The shorter note was first marketed at swaps plus 120bp area and the longer bond at swaps plus 150bp area, through bookrunners and sustainability advisers BNP Paribas and HSBC. "Chanel must have had strong IoIs, because it's a tight start," said a banker away, noting the unrated nature of the offering. "The sustainable angle surely helps." Demand was roughly equal for both bonds, topping €1.65bn at launch. The books finished at over €600m and €750m, respectively. The spreads landed 25bp inside IPTs. Sustainability-linked bonds received a boost earlier this week after the European Central Bank said that from 2021 it would start to accept securities with coupons linked to sustainability performance targets as collateral and would also consider them for its bond buying schemes. The announcement removed one of the biggest hurdles stifling the product, though Chanel's deal would fall outside of the ECB's remit even if it had opened its programme to SLBs now. One reason would be because the deal is unrated. A banker also said that Chanel's maturity premium structure would be unlikely to meet the ECB's criteria for asset purchases. Under its eligibility criteria rules, there is a need for the redemption amount to be unconditional, which under this structure it is not. DEBUT WORKS CTP attracted interest of over €2.1bn for its debut entry into the international bond market, as the only CSPP-eligible offering of Thursday got plenty of wind into its sails. The company began marketing an expected €500m five-year green bond at swaps plus 300bp area, having received feedback in mid to high 200s. CTP (Baa3/BBB–), which describes itself as the largest full-service owner-developer of prime industrial and logistics property in the CEE region, has few direct peers, although leads circulated comparables including Segro (Baa2/-/BBB+), Logicor (BBB) and Sagax (Baa3). Notes aro

BON
6 min read
EMEA, Emerging Markets
Robert Hogg

Key milestone for scrapping Libor delayed to January

(Reuters) - A crucial milestone for moving contracts worth trillions of dollars from the tarnished Libor interest rate won’t take place until mid-January, some months later than previously indicated, an industry body said on Wednesday, compressing an already tight timetable. Regulators want the use of Libor or the London Interbank Offered Rate in contracts from credit cards to mortgages stopped by the end of December 2021 after banks were fined billions of dollars for trying to rig what was once dubbed the world’s most important number. New derivatives and swaps contracts are already moving to alternative overnight rates set by central banks like the Bank of England and the Federal Reserve. The International Swaps and Derivatives Association (ISDA) is amending documentation used as a template for swaps trades globally to state what would be the alternative or “fallback” interest rate used if Libor disappeared for pricing outstanding contracts. Edwin Schooling Latter, the UK Financial Conduct Authority’s head of markets policy, told a Bank of England webinar last week that banks could sign up to the fallback from “sometime in October”. “The ISDA protocol should be published quite shortly...in days and weeks rather than months,” Tushar Morzaria, chair of a financial industry working group on Libor transition, also told the webinar. But ISDA said on Wednesday it now expects the effective date for amendments to documentation in mid-to-late January, less than a year before Libor is due to cease. ISDA CEO Scott O’Malia said the timetable hinges on being given the nod by the U.S. Dept. of Justice and other competition regulators. “Once we hear from the competition authorities, we’ll give market participants approximately two weeks’ notice of the official launch date,” O’Malia said in a blog. The delay could affect an anticipated sequence of events, including more detailed announcements on the phase-out of Libor and its variants from the FCA, and from the administrator that compiles Libor.

2 min read
Huw Jones

Bonds

Medtronic heads pick-up in euro IG primary activity

A session that looked like being barren at first turned into the busiest of the week for the euro investment-grade corporate market, with four issuers launching deals. European stocks were down again as global equity markets remain unsettled but credit markets were relatively becalmed. The deals had all gone through investor marketing, and with the US high-grade market busy on Wednesday despite the retreat on Wall Street, syndicates in Europe felt confident enough to press the button on all four, though IPT announcements were a bit later than usual. That was because syndicates wanted a little more time before going live with their trades. It turned out to be the right call, with all of them launching without any hitches even though only one of the four credits, US medical devices company Medtronic, was a familiar one to investors. Two of the others - luxury brand Chanel Ceres and regional real estate owner CTP - were making their debuts in the international bond market, and both in ESG format. The other issuer, Norway's state-owned airport operator Avinor, was pricing its first euro deal in three years. And of the four only CTP's deal was eligible for the ECB's bond buying schemes, another good sign for the primary market Medtronic's €6.25bn six-part offering included the year's first 30-year tranche in the euro IG market, with long-dated issuance a compelling proposition given where rates are. The 30-year Bund is back in negative yield territory, for example, after inching north of zero in late August/early September. But given the volatility of the market, leads also played it safe with the late inclusion of a 2.5-year note, which was added to the originally planned five, eight, 12, 20 and 30-year bonds. "Medtronic is quite an impressive trade in current markets," said a banker away. Good feedback from investors, including significant indications of interest, gave the leads comfort. In addition, investors' familiarity with the credit helped. Last year, Medtronic (A3/A) made two big trips into euros, with €7bn and €5bn multi-tranche efforts. There was a bit of a debate about what the starting premium was, with one banker saying it was 20bp-25bp, while others put it in the low 20s-40bp range. This was also after the curve had moved wider on Wednesday. "The curve widened 10bp-12bp yesterday. I see IPT levels some 30bp-40bp wide of pre-announcement levels. Think this should fly, but leads won't be shaving more than 25bp off that, surely," said the banker away. That proved almost the case, though the 12-year note was revised by 30bp from IPTs. The other bonds were tightened by 20bp-25bp. Demand was consistent across all tranches, with the 12-year garnering the most interest at launch with €4bn-plus of orders. Total demand was more than €19bn. That enabled leads to launch a €1.25bn 2.5-year at 45bp over swaps; a €1bn five-year at plus 55bp; a €1bn eight-year at plus 75bp; a €1bn 12-year at plus 90bp; a €1bn 20-year at plus 140bp; and a €1bn 30-year at plus 175bp. The Medtronic deal continued the recent momentum in reverse Yankee issuance. Last week, Mondelez, Coca-Cola and Digital Realty all printed euros. Issuance has been principally driven by US corporates' strategic requirements for the currency. The proceeds from the new issue will help repay floating-rate senior notes due 2021, redeem all or a portion of some other senior notes and repay other indebtedness. Barclays, Bank of America, Mizuho and Deutsche Bank were the leads.

BON
4 min read
Americas, EMEA
Sudip Roy

Bonds

Medtronic heads pick-up in euro IG primary activity

A session that looked like being barren at first turned into the busiest of the week for the euro investment-grade corporate market, with four issuers launching deals. European stocks were down again as global equity markets remain unsettled but credit markets were relatively becalmed. The deals had all gone through investor marketing, and with the US high-grade market busy on Wednesday despite the retreat on Wall Street, syndicates in Europe felt confident enough to press the button on all four, though IPT announcements were a bit later than usual. That was because syndicates wanted a little more time before going live with their trades. It turned out to be the right call, with all of them launching without any hitches even though only one of the four credits, US medical devices company Medtronic, was a familiar one to investors. Two of the others - luxury brand Chanel Ceres and regional real estate owner CTP - were making their debuts in the international bond market, and both in ESG format. The other issuer, Norway's state-owned airport operator Avinor, was pricing its first euro deal in three years. And of the four only CTP's deal was eligible for the ECB's bond buying schemes, another good sign for the primary market Medtronic's €6.25bn six-part offering included the year's first 30-year tranche in the euro IG market, with long-dated issuance a compelling proposition given where rates are. The 30-year Bund is back in negative yield territory, for example, after inching north of zero in late August/early September. But given the volatility of the market, leads also played it safe with the late inclusion of a 2.5-year note, which was added to the originally planned five, eight, 12, 20 and 30-year bonds. "Medtronic is quite an impressive trade in current markets," said a banker away. Good feedback from investors, including significant indications of interest, gave the leads comfort. In addition, investors' familiarity with the credit helped. Last year, Medtronic (A3/A) made two big trips into euros, with €7bn and €5bn multi-tranche efforts. There was a bit of a debate about what the starting premium was, with one banker saying it was 20bp-25bp, while others put it in the low 20s-40bp range. This was also after the curve had moved wider on Wednesday. "The curve widened 10bp-12bp yesterday. I see IPT levels some 30bp-40bp wide of pre-announcement levels. Think this should fly, but leads won't be shaving more than 25bp off that, surely," said the banker away. That proved almost the case, though the 12-year note was revised by 30bp from IPTs. The other bonds were tightened by 20bp-25bp. Demand was consistent across all tranches, with the 12-year garnering the most interest at launch with €4bn-plus of orders. Total demand was more than €19bn. That enabled leads to launch a €1.25bn 2.5-year at 45bp over swaps; a €1bn five-year at plus 55bp; a €1bn eight-year at plus 75bp; a €1bn 12-year at plus 90bp; a €1bn 20-year at plus 140bp; and a €1bn 30-year at plus 175bp. The Medtronic deal continued the recent momentum in reverse Yankee issuance. Last week, Mondelez, Coca-Cola and Digital Realty all printed euros. Issuance has been principally driven by US corporates' strategic requirements for the currency. The proceeds from the new issue will help repay floating-rate senior notes due 2021, redeem all or a portion of some other senior notes and repay other indebtedness. Barclays, Bank of America, Mizuho and Deutsche Bank were the leads.

BON
4 min read
Americas, EMEA
Sudip Roy

Bonds

High-yield borrowers turn angsty as appetite shifts

After sentiment in the European high-yield bond market turned on a dime this week, bankers are telling prospective borrowers to bring deals now - because things are about to get worse. Prior to Monday, average junk bond yields had compressed steadily to 3.8% - in from a March 23 peak of 8.86%. But borrowers got a nasty shock this week when yields shot back up over 4% as a combination of equity sell-off, rise in Covid cases and concerns over the US elections turned market sentiment sour. "Monday acted to spook people," said one senior leveraged finance banker. "July to September saw relentless tightening in secondary levels and every day saw the market brush off another negative headline. We're telling issuers to go now; our advice is that this volatility is here to stay." The fourth quarter is set to be "catalyst-heavy" for volatility, said the banker, thanks to a confluence of Brexit noise, the US elections and the potential for further coronavirus restrictions. "It would take a brave borrower to hold off. You're going to see those pre-Covid 19 M&A underwrites look to come now - unless there's a sustained period of volatility," said the banker. What has helped to scare both bankers and borrowers into action is that the yield widening on Monday seemed to be partly down to further restrictions in the UK. "Even though UK-based companies represent a very small proportion of the high-yield index, it still triggered a massive spike in volatility, and deals that launched Monday didn't price where they would have last week," said the banker. Bankers are now looking once more at their pre-Covid 19 M&A underwrites. The majority of that pipeline was cleared in the first possible window after the markets started rallying in May. Banks managed to get away a €10.3bn loan and bond financing backing the buyout of ThyssenKrupp in June, and a €1.344bn-equivalent deal the following month to fund pub owner Stonegate's acquisition of Ei Group - a sector heavily exposed to Covid-19. But some financings are still to come, including PureGym's €445m acquisition of Fitness World, Permira's €450m purchase of Golden Goose and BC Partners' acquisition of Pasticceria Bindi. "Collectively, the banks have de-risked the vast majority of their exposure, but there's a few deals out there," said a second banker. "Before the sell-off we've seen in the last couple of days the plan on those would have been to come to market in late September or early October to de-risk them - and now it's likely to be delayed." He stressed that there is now an "incredibly small" number of deals left hung on banks' balance sheets. Unless the fourth quarter sees a major sell-off, which would involve M&A underwrites being cleared at a level beyond bank caps, those deals will be sold in the fourth quarter, said a third banker. "It would take an incredibly brave gamble for a borrower to think things will get better. You're not going to see anyone want to hold on beyond year-end." However, borrowers with spread-specific refinancing needs are wondering whether to wait for a better window. "Issuers are nervous," said the third banker. "They saw a great market up to this point and are now worried that they've missed the boat." That applies mainly to borrowers that needed the market to improve dramatically before refinancing made sense. "They're trying to figure out whether it's worth bringing them now - or whether they want to wait." INVESTOR OPPORTUNITY While borrowers are spooked, investors are still looking to add risk and will be taking advantage of the current climate to demand larger issuer premiums in primary, said bankers. "I don't think investors have changed their tune," said the third high-yield banker. "The cash position hasn't changed - no one is expected to see any outflows, and central banks are remaining supportive," he said. However, Monday's wobble has reminded the buyside that the market will continue to see volatility, and they are looking for deals with a b

BON
5 min read
EMEA
Eleanor Duncan

LOA SF RATE P&M

EXCLUSIVE-ECB plots Amazon-style market to prevent Wall Street COVID debt swoop

(Reuters) Europe is working on an Amazon-style website to sell hundreds of billions of euros of bank loans which have been soured by the coronavirus crisis, in a bid to shore up the economy and challenge the dominance of big Wall Street debt investors. The blueprint, devised by top European Central Bank (ECB) officials, is part of efforts by the 19-state euro zone to tackle a growing pile of unpaid loans and aims to prevent "distressed debt" funds from buying them at rock bottom prices. "The idea is to open up the market to buyers of smaller portfolios, with an Amazon or eBay-style marketplace, where you can browse ... That can get the market moving," Edward O'Brien, a senior ECB official involved in the plan, told Reuters. Large funds bought billions of euros of loans in the aftermath of the last financial crisis, in the process acquiring swathes of property some of which has since risen in value. "The market for bad loans has been dominated by a few very large buyers. In a typical scenario, one of these firms may buy a very large portfolio at steep discounts," O'Brien said. A study by Deloitte found that of the more than 450 billion euros ($529 billion) of loans sold in Europe between 2014 and 2019, roughly half were bought by Cerberus, Blackstone, Lone Star and Goldman Sachs. Blackstone and Cerberus did not respond to a request for comment. Goldman Sachs and Lone Star both declined to comment. Banks offload bad debts, normally at a fraction of their face value, to free up their balance sheets to make new loans and keep both their own business and economies going. The ECB scheme, which has yet to be signed off and will be discussed with European Union officials on Friday, is inspired by Italian website BlinkS, which links buyers and sellers of loans, as well as debt auctions by a U.S. federal agency. If EU states agree, the new marketplace could come under the Single Resolution Board (SRB), a European Union agency in Brussels that winds up failing banks. "Why is it that every public contract has to be put out to tender in an open competition and bad loans can be sold off behind closed doors?" Bostjan Jazbec, an SRB director, said. "Success in buying and selling bad loans involves a lot of insider information. COVID means more bad loans ahead. Any sale must be transparent," Jazbec added. Debt in the euro zone considered unlikely to ever be fully repaid stands at more than half a trillion euros, including credit cards, car loans and mortgages, and is set to rise. John Fell, a second senior ECB official involved, said these bad loans presented a wider challenge. "The problem is bad loans is too often understood to be one that is limited to banks. But it is far wider, it affects the whole economy," Fell said. BALANCING ACT It is usual for banks to sell old loans to investors, with individual packages sometimes topping 10 billion euros, but the ECB is concerned that this is skewed in favour of big buyers. "There are only about half a dozen buyers who can write a cheque for hundreds of millions of euros," said Gifford West of DebtX, which runs a similar platform in the U.S., adding that packaging the loans into smaller bundles could widen the pool of buyers up to 1,000. Under the new platform contemplated by the ECB, which could be up and running early next year, the packet size could be cut to 10 million euros, attracting smaller buyers who may pay more. As well as an economic angle to the ECB's blueprint, there is also a strong political dimension to challenging such big investors. Supporters say they played a critical role, for example, in buoying the flagging Irish property market, after its crash. But critics have dubbed them "vulture funds" and their power was a lightning rod in elections in Ireland this year when Sinn Fein secured more votes than the establishment parties for the first time. The left-wing party's popularity was lifted by a housing crisis it partly blamed on fund investors crowding out the property market. A

LOA SF RATE P&M
5 min read
John Odonnell, Matthew Scuffham

Bonds

High-yield borrowers turn angsty as appetite shifts

After sentiment in the European high-yield bond market turned on a dime this week, bankers are telling prospective borrowers to bring deals now - because things are about to get worse. Prior to Monday, average junk bond yields had compressed steadily to 3.8% - in from a March 23 peak of 8.86%. But borrowers got a nasty shock this week when yields shot back up over 4% as a combination of equity sell-off, rise in Covid cases and concerns over the US elections turned market sentiment sour. "Monday acted to spook people," said one senior leveraged finance banker. "July to September saw relentless tightening in secondary levels and every day saw the market brush off another negative headline. We're telling issuers to go now; our advice is that this volatility is here to stay." The fourth quarter is set to be "catalyst-heavy" for volatility, said the banker, thanks to a confluence of Brexit noise, the US elections and the potential for further coronavirus restrictions. "It would take a brave borrower to hold off. You're going to see those pre-Covid 19 M&A underwrites look to come now - unless there's a sustained period of volatility," said the banker. What has helped to scare both bankers and borrowers into action is that the yield widening on Monday seemed to be partly down to further restrictions in the UK. "Even though UK-based companies represent a very small proportion of the high-yield index, it still triggered a massive spike in volatility, and deals that launched Monday didn't price where they would have last week," said the banker. Bankers are now looking once more at their pre-Covid 19 M&A underwrites. The majority of that pipeline was cleared in the first possible window after the markets started rallying in May. Banks managed to get away a €10.3bn loan and bond financing backing the buyout of ThyssenKrupp in June, and a €1.344bn-equivalent deal the following month to fund pub owner Stonegate's acquisition of Ei Group - a sector heavily exposed to Covid-19. But some financings are still to come, including PureGym's €445m acquisition of Fitness World, Permira's €450m purchase of Golden Goose and BC Partners' acquisition of Pasticceria Bindi. "Collectively, the banks have de-risked the vast majority of their exposure, but there's a few deals out there," said a second banker. "Before the sell-off we've seen in the last couple of days the plan on those would have been to come to market in late September or early October to de-risk them - and now it's likely to be delayed." He stressed that there is now an "incredibly small" number of deals left hung on banks' balance sheets. Unless the fourth quarter sees a major sell-off, which would involve M&A underwrites being cleared at a level beyond bank caps, those deals will be sold in the fourth quarter, said a third banker. "It would take an incredibly brave gamble for a borrower to think things will get better. You're not going to see anyone want to hold on beyond year-end." However, borrowers with spread-specific refinancing needs are wondering whether to wait for a better window. "Issuers are nervous," said the third banker. "They saw a great market up to this point and are now worried that they've missed the boat." That applies mainly to borrowers that needed the market to improve dramatically before refinancing made sense. "They're trying to figure out whether it's worth bringing them now - or whether they want to wait." INVESTOR OPPORTUNITY While borrowers are spooked, investors are still looking to add risk and will be taking advantage of the current climate to demand larger issuer premiums in primary, said bankers. "I don't think investors have changed their tune," said the third high-yield banker. "The cash position hasn't changed - no one is expected to see any outflows, and central banks are remaining supportive," he said. However, Monday's wobble has reminded the buyside that the market will continue to see volatility, and they are looking for deals with a b

BON
5 min read
EMEA
Eleanor Duncan

People & Markets

Westpac agrees to record money laundering fine

Westpac Banking Corp has agreed to the largest fine ever in Australian corporate history to settle accusations of pervasive money laundering offences, including failing to stop child exploitation payments. The country's second-largest lender will pay A$1.3bn (US$917m) to settle a lawsuit initiated by financial crime watchdog Austrac. That surpasses the A$700m fine Commonwealth Bank of Australia paid in 2018 after it was accused of tens of thousands of breaches of anti-money laundering rules for failing to stop criminal gangs from using its cash machines to launder the proceeds of drug and firearm sales. As part of the agreement, which is subject to approval by the Federal Court, Westpac admitted to over 23 million breaches of AML and counter-terrorism financing rules. This included failing to properly report over 19.5 million international fund transfer instructions amounting to over A$11bn as well as failing to carry out appropriate customer due diligence on suspicious transactions associated with possible child exploitation. Crucially for Westpac, the settlement also covers approximately 76,000 additional contraventions, mostly involving further ITFI reporting failures, which came to light after Austrac filed its lawsuit in November last year. Westpac CEO Peter King offered contrition for the bank's failings, while underscoring the steps taken to tackle the root causes of the scandal. "We are committed to fixing the issues to ensure that these mistakes do not happen again. This has been my number one priority," he said in a statement. He pointed out that Westpac had strengthened its capabilities to prevent misdeeds, including hiring around 200 financial crime experts and creating a new group executive position directly responsible for overseeing the bank's efforts in this regard. Austrac chief executive Nicole Rose underlined the severity of Westpac's failings, although she noted the progress the bank had made to fix its practices. "These compliance failings by Westpac exposed our community to the risk of criminals seeking to exploit our financial system," she said. "I’m pleased to say Westpac has commenced uplifting its AML/CTF controls and has taken urgent steps to close gaps and strengthen policies, data systems and processes." The settlement draws a line under a painful chapter which led to the ousting of Westpac's former chief executive Brian Hartzer and the early retirement of ex-chairman Lindsay Maxsted, as well as at least three class-action lawsuits. King, who was chief financial officer at the time the scandal broke and was due to retire this year, was given the top job on a two-year contract, while former Barclays chairman and Australia and New Zealand Banking Corp CEO John McFarlane was brought in as chairman. Westpac set aside A$900m in its first-half 2020 results in April and said it would book a further A$404m in provisions for the full fiscal year to September 30 to account for the higher extra penalty and additional costs including Austrac's legal expenses. UBS analyst Jonathan Mott said the fine would take around 8bp off the bank's common equity Tier 1 capital ratio, which stood at 10.8% at June-end. Several analysts also said it increased the possibility that the bank would cut its full-year dividend, having become the first of Australia's big four banks to scrap its half-year dividend last month.

P&M
3 min read
Asia
Thomas Blott

LOA SF RATE P&M

EXCLUSIVE-ECB plots Amazon-style market to prevent Wall Street COVID debt swoop

(Reuters) Europe is working on an Amazon-style website to sell hundreds of billions of euros of bank loans which have been soured by the coronavirus crisis, in a bid to shore up the economy and challenge the dominance of big Wall Street debt investors. The blueprint, devised by top European Central Bank (ECB) officials, is part of efforts by the 19-state euro zone to tackle a growing pile of unpaid loans and aims to prevent "distressed debt" funds from buying them at rock bottom prices. "The idea is to open up the market to buyers of smaller portfolios, with an Amazon or eBay-style marketplace, where you can browse ... That can get the market moving," Edward O'Brien, a senior ECB official involved in the plan, told Reuters. Large funds bought billions of euros of loans in the aftermath of the last financial crisis, in the process acquiring swathes of property some of which has since risen in value. "The market for bad loans has been dominated by a few very large buyers. In a typical scenario, one of these firms may buy a very large portfolio at steep discounts," O'Brien said. A study by Deloitte found that of the more than 450 billion euros ($529 billion) of loans sold in Europe between 2014 and 2019, roughly half were bought by Cerberus, Blackstone, Lone Star and Goldman Sachs. Blackstone and Cerberus did not respond to a request for comment. Goldman Sachs and Lone Star both declined to comment. Banks offload bad debts, normally at a fraction of their face value, to free up their balance sheets to make new loans and keep both their own business and economies going. The ECB scheme, which has yet to be signed off and will be discussed with European Union officials on Friday, is inspired by Italian website BlinkS, which links buyers and sellers of loans, as well as debt auctions by a U.S. federal agency. If EU states agree, the new marketplace could come under the Single Resolution Board (SRB), a European Union agency in Brussels that winds up failing banks. "Why is it that every public contract has to be put out to tender in an open competition and bad loans can be sold off behind closed doors?" Bostjan Jazbec, an SRB director, said. "Success in buying and selling bad loans involves a lot of insider information. COVID means more bad loans ahead. Any sale must be transparent," Jazbec added. Debt in the euro zone considered unlikely to ever be fully repaid stands at more than half a trillion euros, including credit cards, car loans and mortgages, and is set to rise. John Fell, a second senior ECB official involved, said these bad loans presented a wider challenge. "The problem is bad loans is too often understood to be one that is limited to banks. But it is far wider, it affects the whole economy," Fell said. BALANCING ACT It is usual for banks to sell old loans to investors, with individual packages sometimes topping 10 billion euros, but the ECB is concerned that this is skewed in favour of big buyers. "There are only about half a dozen buyers who can write a cheque for hundreds of millions of euros," said Gifford West of DebtX, which runs a similar platform in the U.S., adding that packaging the loans into smaller bundles could widen the pool of buyers up to 1,000. Under the new platform contemplated by the ECB, which could be up and running early next year, the packet size could be cut to 10 million euros, attracting smaller buyers who may pay more. As well as an economic angle to the ECB's blueprint, there is also a strong political dimension to challenging such big investors. Supporters say they played a critical role, for example, in buoying the flagging Irish property market, after its crash. But critics have dubbed them "vulture funds" and their power was a lightning rod in elections in Ireland this year when Sinn Fein secured more votes than the establishment parties for the first time. The left-wing party's popularity was lifted by a housing crisis it partly blamed on fund investors crowding out the property market. A

LOA SF RATE P&M
5 min read
John Odonnell, Matthew Scuffham

BON RATE

UPDATE 2-Confidence underpins record A$25bn AOFM sale

Recasts throughout The Australian Office of Financial Management (Aaa/AAA/AAA) returned to the syndicated market yesterday with a record-breaking A$25bn (US$17.6bn) sale of 0.5% September 21 2026 Treasury bonds. The sixth syndicated sovereign issue since the coronavirus crisis secured a A$66.1bn order book at final pricing, which allowed lead managers ANZ, Bank of America, Deutsche Bank and JP Morgan to print at the tight end of EFP (three-year futures contract) plus 24bp–27bp guidance. Craig Johnson, head of DCM syndicate for Australia and New Zealand at Deutsche Bank, said the overseas bid in particular was underpinned by the clarity of the Reserve Bank of Australia’s monetary policy, including yield curve control, as well as confidence in the AOFM’s “sensible and measured” issuance strategy. “All five of the previous syndicated trades have performed in the secondary market and this has helped build goodwill among investors,” Johnston noted. “The relatively short six-year tenor was also supportive, after two long-dated issues, especially as the new note will be included in the five-year futures contract basket.” Johnson next pointed to Australia’s absolute yield advantage over international comps, notably Treasuries, Gilts, Bunds and JGBs, whose five-year benchmarks were yielding 0.27%, 0.07%, minus 0.71% and minus 0.12%, respectively, versus 0.47% for the new 2026 ACGB. Furthermore, any concerns about heightened sovereign supply have been offset by Australia’s relatively low pre-coronavirus debt levels, while the greater liquidity of the recent jumbo lines is a positive development for fund managers in particular, according to Johnson. Offshore investors bought 54.4% of the bonds and domestic accounts 45.6%. The largest overseas purchasers were from Asia ex-Japan with a 28.1% allocation, followed by the UK with 11.6%, North America 9.7%, Europe 4.9% and Japan 0.1%. Fund managers took 31.6%, hedge funds 18.2%, bank trading 17.9%, bank balance sheets 16.6%, central banks 12.3% and others 3.4%. Wednesday’s deal follows the A$13bn sale of November 2024s on April 15, the A$19bn sale of December 2030s on May 13, the A$17bn November 2025 sale on July 14, the A$15bn sale of 1.75% June 21 2051s on July 28 and a A$21bn sale of 1% November 21 2031s on August 26.

BON RATE
2 min read
Asia
John Weavers

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PRICED-Global Medical Response US$600m 5yr NC1 at 6.50%

PRICED: US$600m 6.50% cpn 5-year(10/1/25) NC1 at 100, yld 6.50%. Spread: T+623bp. MWC T+50bp Prior to October 1, 2021. Equity Clawback: Until October 1, 2021, the Company may, at its option, on one or more occasions redeem up to 40%. Call Schedule: 10/1/21 103.25, 10/1/22 101.625, 10/1/23 and thereafter 100. Cusip 144a: 37960B AA3. Settlement: 10/2/20 LAUNCH: US$600m(downsized from US$740m) at 6.50% Downsized: (US$140MM, shifted to upsized TLB offering) PRICE TALK: US$740m(upsized from US$500m) 6.375% area Global Medical Response Inc( AIMEGR ), B2/B, announced a US$500m 144a/RegS 5-year NC1(par + 50% of cpn) senior secured notes via bookrunners MS(Left Lead), KKRCAP, BARCS, BofA, CAPONE, CS, GS, JEFLLC, JPM, RF. UOP: To refinance the existing 1st Lien Term Loan due 2022. Roadshow ends 9/24. Pricing is expected next week

BON
Quick read
Americas

RATE FX ECON

BUZZ-AUD/USD slide stalls ahead of 10-DMA by 0.7002

AUD/USD rallies off NorAm session low 0.7016 ending NorAm 0.7050 down 0.28% Selling abates as broad USD strength ebbs in NY afternoon, commods rebound 5th straight day of lower low, lower highs hints at bearish tone Stosh's/RSI oversold, multiple DMA's point lower add to bearish tone Lower 30-d Bolli at 0.7083 next res, cluster of DMA's in mid-0.72's cap Aussie bears target series of daily lows on way to its 200-DMA near 0.6773 For more click on FXBUZ AUD Chart: https://tmsnrt.rs/2FP7jd3

RATE FX ECON
2 min read
Americas, Asia
Paul Spirgel

BON RATE

Stats out for AIIB USD3bn 0.25% Sep 2023 SDB

Issue: AIIB US$3bn 0.25% Sep 2023 3yr SDB at MS+9 / T+16.5 / 99.8 / 0.316% Pricing date: Sep 22 2020 Ratings: Aaa/AAA/AAA Leads: BNPP / Citi / JPM / Nomura Pricing steps: MS+10 area, MS+9, MS+9 Book size: US$4.2bn NIP: - Distribution: Asia 46.1%, Amers 27.6%, EMEA 26.3%. CB/OI 76.7%, Bks 15.6%, FM 5.6%, Ins/PF 0.3%, Other 1.8%.

BON RATE
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Global

BON RATE

Stats out for UK DMO GBP6.5bn 0.5% Oct 2061 tap

Issue: UK DMO £6.5bn incr (£13.5bn) 0.5% Oct 2061 at G'60 - 0.5 / 94.16 / 0.663% Pricing date: Sep 22 2020 Ratings: Aa2/AA/AA- Leads: Barc / GS / MS / NatWest Pricing steps: G-0.5/-0.25, G'60 - 0.5 Book size: >£49bn NIP: -0.5bp Distribution: UK 92.5%, RoW 7.5%.

BON RATE
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EMEA

Bonds

Stats out for AIB EUR1bn 2.875% 10.5NC5.5 green T2

Issue: AIB €1bn 2.875% May 30 2031 (May 2026) green T2 at MS+330 / B+361 / 99.95 / 2.886% Pricing date: Sep 23 2020 Ratings: Baa3/BB/BB+ Leads: ING / Citi / Davy / HSBC / JPM / MS Pricing steps: MS+360 area, MS+335/+340, MS+330 Book size: >€2.1bn, 150acs NIP: 10bp Distribution: UK/Ire 58%, Nordics 12%, Fr 11%, S.Eur 10%, Germ/Aus 4%, Switz 4%, Other 1%. AM 80%, CB/OI 7%, Bks/PB 5%, Ins/PF 4%, HF 4%.

BON
Quick read
EMEA

Bonds

GUIDANCE-Avolon Holdings US$ 5-year; T+525bp(the#)

GUIDANCE: T+525bp(the#) Avolon Holdings Funding Ltd(AVOL), Baa3/BBB-/BBB-, announced a US$ 144a/RegS long 5-year(1/15/26) senior unsecured notes via bookrunners BNP/CA-CIB/JPM/MIZ/MUFG. UOP: General corporate purposes, which may include the future repayment of outstanding indebtedness. MWC. Par call 1 month prior to maturity. Pricing is expected today. Settlement: 9/29 - IPTs: T+550bp

BON
Quick read
Americas, EMEA

FX option expiries for 10-am New York cut

Friday September 25 EUR/USD: 1.1650 (250M), 1.1700 (630M), 1.1725 (534M), 1.1740-50 (500M) AUD/USD: 0.7300 (1.8BLN). USD/CAD1.3250 (216M), 1.3325 (390M), 1.3350 (220M), 1.3375 (320M), 1.3500 (280M) EUR/JPY: 122.50 (380M). GBP/JPY: 135.30 (369M) USD/JPY: 104.30-40 (750M), 104.50 (700M), 104.70 (650M), 105.00 (1.3BLN), 105.50 (610M), 105.80-90 (700M)

Quick read

Bonds

Chanel finds runway success in novel approach

In a sign of how the ESG bond market is moving into the mainstream, Chanel opted for a sustainability-linked deal to make its debut on Thursday, securing a €600m dual-tranche offering that received acclaim from investors. With a growing focus on sustainability from investors across the globe, corporates have been eager to showcase their ESG credentials through financial markets transactions with various labels and targets. In the case of Chanel, which was guaranteeing the notes issued by Chanel Ceres, the French fashion house opted for a sustainability-linked bond instead of a more conventional green bond. "We like the Chanel SLB, and one of the reasons why we like it is they actually use as a framework for this issuance a climate scenario certified by science-based targets," said Felipe Gordillo, senior ESG analyst at BNP Paribas Asset Management. "Clearly, that's best practice, and we'd like to see more." Unlike the other four sustainability-linked bond (or KPI-linked bond) deals issued since Italian utility Enel debuted the format in dollars and euros last year, Chanel's doesn't include a step-up coupon if the KPIs aren't met. Instead, the company will pay a cash premium at maturity if it fails to meet its key performance indicator targets. In its case these indicators include pledges to transition to 100% renewable electricity for its operations by 2025 and to cut emissions by 50% by 2030. If it misses those targets it will pay cash premiums of 50bp on the 2026 tranche and 75bp on the 2031 tranche at maturity, said a banker at one of the leads. "What is needed for this market to become more mature is to have the companies which don't have the best carbon profile today but are truly committed to creating an impact," said Gordillo. "They can use this to raise awareness and to create a financial incentive whereby if they don't meet the target there is a risk to the company's cost of funding. The market will show a positive evolution if it's not just the best-in-class companies issuing these bonds." The Chanel bonds were sized equally across a long five-year and long 10-year. The shorter note was first marketed at swaps plus 120bp area and the longer bond at swaps plus 150bp area, through bookrunners and sustainability advisers BNP Paribas and HSBC. "Chanel must have had strong IoIs, because it's a tight start," said a banker away, noting the unrated nature of the offering. "The sustainable angle surely helps." Demand was roughly equal for both bonds, topping €1.65bn at launch. The books finished at over €600m and €750m, respectively. The spreads landed 25bp inside IPTs. Sustainability-linked bonds received a boost earlier this week after the European Central Bank said that from 2021 it would start to accept securities with coupons linked to sustainability performance targets as collateral and would also consider them for its bond buying schemes. The announcement removed one of the biggest hurdles stifling the product, though Chanel's deal would fall outside of the ECB's remit even if it had opened its programme to SLBs now. One reason would be because the deal is unrated. A banker also said that Chanel's maturity premium structure would be unlikely to meet the ECB's criteria for asset purchases. Under its eligibility criteria rules, there is a need for the redemption amount to be unconditional, which under this structure it is not. DEBUT WORKS CTP attracted interest of over €2.1bn for its debut entry into the international bond market, as the only CSPP-eligible offering of Thursday got plenty of wind into its sails. The company began marketing an expected €500m five-year green bond at swaps plus 300bp area, having received feedback in mid to high 200s. CTP (Baa3/BBB–), which describes itself as the largest full-service owner-developer of prime industrial and logistics property in the CEE region, has few direct peers, although leads circulated comparables including Segro (Baa2/-/BBB+), Logicor (BBB) and Sagax (Baa3). Notes aro

BON
6 min read
EMEA, Emerging Markets
Robert Hogg

Equities

Duerr raises €150m with CB debut

German mechanical and plant engineering firm Duerr raised €150m on Thursday from convertible bonds due January 2026, with proceeds for general corporate purposes, including refinancing and potential acquisitions. Refinancing involves liabilities of €450m due in 2021. Duerr is new to equity-linked, with pre-sounding allowing the leads to tell the equity story on a group that, across its Duerr, Schenck and Homag brands, provides paint and assembly automation for the automotive sector, balancing and diagnostics systems, and woodworking machinery and systems for furniture manufacturers and others. "We are thinking beyond the corona crisis and looking at further acquisitions to tap new growth potential," said CEO Ralf Dieter in a statement. Acquisitions in recent years includes Homag and Megtec/Universal, with software specialist Techno-Step bought this year as well as increasing its stake in Homag subsidiary Weinmann to 100%. A complete takeover of sales company Homag China Golden Fields is expected soon. Thursday's deal was covered on indications of interest from the pre-sounding and launched offering a coupon of 0.25%-0.75% and 40%-45% premium over the VWAP from launch to pricing. There is a call from February 2024 with a 130% trigger. A credit assumption of 325bp was based in part on companies in the auto sector and on being a crossover name. There was little pushback. Implied vol was 25%-31% with a bond floor of 87.4%-89.9%. With US markets closing lower on Wednesday and similar red on screens in Asia early Thursday, the launch was delayed until 20 minutes after the market open to gauge whether to go ahead with the trade. Coverage came after 50 minutes and books closed around midday with pricing at best ends for investors, a coupon of 0.75% and a 40% premium over the €24.4427 reference price for a €34.22 conversion price. A book of more than 50 lines was fairly large given the €150m sizing, which is small compared with its €1.8bn market cap. The CBs are convertible into approximately 4.4m new and/or existing shares. Heinz Duerr, the largest shareholder with a 25.5% stake, agreed to invest €5m. A banker involved said that there was good interest as a result of both "a solid credit story and it offers some diversification". The bonds were trading around 100.5%-101% in the grey market by early afternoon. Duerr shares closed down 5.5% at €24.60. BNP Paribas, LBBW and UniCredit were bookrunners.

EQY
2 min read
EMEA
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PRICED-Global Medical Response US$600m 5yr NC1 at 6.50%
BUZZ-AUD/USD slide stalls ahead of 10-DMA by 0.7002
US GOVTS-7s auctioned at 0.462%; 62.8% Indirects; 16.6% Directs; on the screws
Stats out for AIIB USD3bn 0.25% Sep 2023 SDB
Stats out for UK DMO GBP6.5bn 0.5% Oct 2061 tap
Stats out for AIB EUR1bn 2.875% 10.5NC5.5 green T2
GUIDANCE-Avolon Holdings US$ 5-year; T+525bp(the#)
FX option expiries for 10-am New York cut
US GOVTS-Auction Call; End users forced to pay up in auctions recently as foreign bid vaults
Chanel finds runway success in novel approach
US AGENCIES-FHLB sells $7.750 bn discount notes
MBS MIDDAY-Mostly tighter amid overwhelming Fed support and tight range
Duerr raises €150m with CB debut
CORRECTION-Avolon Holdings US$ 5-year; IPTs: T+550bp
US GOVTS FUNDING-Collateral chase eases, GC firms to 0.11%
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