Aircraft lessor AerCap is looking to land on Thursday a heavily anticipated investment grade bond to finance its acquisition of GE Capital Aviation Services, bringing a jumbo offering to a market that has seen the number of such large deals decline this year. The new bond, rated Baa3/BBB/BBB-, will help the world's largest lessor take out the US$24bn of committed financing AerCap lined up for its purchase of GECAS, which was announced in March in a deal valued at around US$30bn. The Ireland-based company is looking to price a nine-part senior unsecured note that will include fixed-rate tranches in two-year, three-year, three-year non-call one, five-year, seven-year, 10-year, 12-year and 20-year tenors, plus a three-year floater. The fixed maturities come with guidance of 70bp, 90bp, 100bp, 125bp, 150bp, 165bp, 175bp and 175bp over Treasuries, respectively. Spreads tightened around 20bp-30bp from initial price thoughts. Citi and Goldman Sachs are global coordinators. Bookrunners also include HSBC, TD Securities, MUFG, Societe Generale, BNP Paribas, Credit Suisse, Truist, Credit Agricole, RBC Capital Markets, Mizuho, Morgan Stanley, Wells Fargo, JP Morgan, BofA Securities, Santander, Barclays and Deutsche Bank. Investors said appetite for the deal was running high. The buyside is flush with cash, fed by weeks of almost unrelenting inflows into the space. "This will definitely be a deal with lots of demand," said a portfolio manager. "This issuer was pretty small before, so most big accounts have room to add the name, plus it will be a big index constituent going forward." Leads have so far collected orders of around US$72bn, according to a person familiar with the matter. The intermediate maturities collected the most demand with the five-year fetching orders of US$11.2bn and the seven-year at US$13.5bn, according to two buyside sources. AerCap's move to sell longer-dated maturities, outside its more trafficked tenors, could help create more liquidity across the credit curve. AerCap last issued a US dollar bond in January, printing a five-year tenor. "AerCap historically financed the intermediate part of the curve," said a syndicate banker on the deal. "Going beyond 10s is a new part of the curve for them."Jumbo liquidity While merger and acquisition activity has soared in 2021, the proportion of US investment grade bond issues earmarked for M&A activity has dropped. M&A financing has represented 17.5% of issuance year to date, down from the 20% to 29% figures seen between 2016 and 2019, according to Refinitiv data. And the M&A deals that have hit the market have skewed toward smaller transactions, creating pent-up demand for jumbo issues that offer investors a chance to bolster the liquidity of their portfolios. "We're seeing the liquidity premium come back again for large benchmark notes. That has benefited the few jumbo bond deals that we've seen year-to-date" said the banker.Upward trajectory AerCap said it would aim to keep leverage on an even keel after the GECAS purchase. The company's debt-to-equity ratio stood at 2.4 times as of June 30, according to corporate filings. AerCap said that metric is expected to rise to three times following the purchase, and then later fall to 2.7 times within one year after the acquisition is wrapped up. "We held onto the investment-grade rating throughout the pandemic, and we want to put ourselves back there where we move the rating in an upward trajectory. That will be job number one," said Aengus Kelly, chief executive officer for AerCap in a July 29 earnings call.
Data center operator DataBank this week priced its second securitization following a successful debut offering earlier this year driven by rising demand for technology assets. The two-part US$331.8m DataBank Series 2021-2 on Wednesday fetched solid demand and priced tighter than the US$657.89m offering in February, despite competition from a heavy asset-backed pipeline this week, a source familiar with the deal said. Year-to-date, data center ABS supply has increased to US$2.99bn, up from US$2.38bn for all of 2020, according to IFR. It is expected to increase further with DataBank's sibling Vantage Data Centers filing a 15G for its first securitization of the year on Wednesday. DataBank was acquired by a group led by investment firm DigitalBridge, while Vantage was acquired by another DigitalBridge-led group in 2017. "It went well. With how crowded the calendar is, every deal seems to be taking a day longer than usual (to complete)," the source said. Eleven issuers have raised more than US$7bn in the ABS market since Monday, putting it on track for its heaviest supply week in a month, according to IFR. The private Dallas-based company's US$310m Class "A-2" note priced at 120bp over swaps, which was inside the 135bp on the US$533.6m "A-2" paper in the debut transaction. The tranche carries a weighted-average life of 4.99 years and is expected to be rated A- by Kroll. The US$$21.8m Class "B" tranche with an expected BBB rating from Kroll and a 4.99-year WAL cleared at swaps plus 160bp, which was well inside than the 195bp spread on the US$44.54 "B" debt sold in February. Deutsche Bank and Guggenheim were the joint bookrunners. The two DataBank deals are backed by cash flows from 19 data centers, which are expected to generate US$161.43m of revenue in 2021, according to Kroll. "The properties supporting the transaction’s notes are all data centers whose customers require robust data center operations to ensure their own operational capability," the rating agency said in a pre-sale report.
In spite of a troubled past and an uncertain future, Banca Carige on Thursday found strong demand for its first euro benchmark covered bond in six years, landing an upsized €750m seven-year thanks partly to an eye-catching swaps plus 57bp spread. Uncertainty has long surrounded Banca Carige. In 2019, the bank was placed in temporary administration by the European Central Bank before being rescued by Fondo Interbancario di Tutela dei Depositi, a deposit-guarantee fund financed by Italian banks. Its peers provided the majority of a €700m capital increase. But the problems of Carige, which is still controlled by the FITD fund and is still loss-making, are not over. The bank has said it may need another €400m of capital by the third quarter of 2022 and was one of the worst performers in the ECB's 2021 stress test. Carige is seeking a buyer after banking group Cassa Centrale Banca declined an option to buy out a controlling stake in March. Last week, the bank hired Boston Consulting Group to help it explore ways to develop its business, including through a merger. Despite the background noise, the bank has been preparing for a return to the capital markets since its shares resumed trading in July after a two and a half year suspension. "Clearly, the will here is to transport Carige into a bigger bank. However, they are still operating business as usual, serving a specific area of Italy with mortgages and other products, so they needed long-term funding," said a banker close to Thursday's new issue. "A covered bond was an obvious choice for providing the cheapest possible source of long-term financing." The issuer's situation is reflected in the obbligazioni bancarie garantite's expected ratings of Baa3/BBB (Moody's/DBRS) - capped by the issuer's ratings of Caa2/B(low). The deal is one of the lowest-rated euro benchmark covered bonds investors can buy. Most Italian covered bonds are rated Double A in contrast. "[The price] needs to be high on the mid-swaps basis just because of the rating - it's essentially the same as the one from Republic of Italy," said a banker away from the deal. "So then you realise 'okay, what is my incentive to buy this through Italy when I won't even have a better rating?'" While the deal is eligible for the ECB's covered bond purchase programme, its Triple B ratings mean it is only LCR Level 2B eligible, according to the leads. That also warranted some additional pick-up as most other Italian covered bonds are Level 1B eligible. However, Bernd Volk, head of European covered bond and agency research at Deutsche Bank, wrote that with a €2.66bn cover pool translating to an overcollateralisation level of 156%, and with committed overcollateralisation of 22% and a Moody's collateral score of 7.7%, "investor protection seems stronger than the low covered bond rating suggests".Investment proposition The deal is Carige's first benchmark covered bond since October 2015, when it sold a €500m deal that matured in January 2021. The bank's only other benchmark-sized OBG, a €600m deal, is set to mature next week. With few comparables available, the price discovery process was directed by investor feedback received during a two day roadshow. On Thursday morning, the deal was marketed with initial price thoughts of mid-swaps plus the high 60s for an expected size of €500m, via Commerzbank, Credit Suisse, IMI-Intesa Sanpaolo, NatWest Markets and UBS. The spread was set at 57bp and the size raised to €750m. The final spread is the widest for a euro benchmark covered bond since March 2019, according to IFR data, and offered a pick-up of around 10bp versus the Italian sovereign. The level proved to be sufficient compensation for many investors with the book closing in excess of €1.2bn, excluding lead orders. Bankers also pointed to the substantial progress made by the bank's new management in restructuring and improving asset quality. Carige has cut its gross non-performing ex
In spite of a troubled past and an uncertain future, Banca Carige on Thursday found strong demand for its first euro benchmark covered bond in six years, landing an upsized €750m seven-year thanks partly to an eye-catching swaps plus 57bp spread. Uncertainty has long surrounded Banca Carige. In 2019, the bank was placed in temporary administration by the European Central Bank before being rescued by Fondo Interbancario di Tutela dei Depositi, a deposit-guarantee fund financed by Italian banks. Its peers provided the majority of a €700m capital increase. But the problems of Carige, which is still controlled by the FITD fund and is still loss-making, are not over. The bank has said it may need another €400m of capital by the third quarter of 2022 and was one of the worst performers in the ECB's 2021 stress test. Carige is seeking a buyer after banking group Cassa Centrale Banca declined an option to buy out a controlling stake in March. Last week, the bank hired Boston Consulting Group to help it explore ways to develop its business, including through a merger. Despite the background noise, the bank has been preparing for a return to the capital markets since its shares resumed trading in July after a two and a half year suspension. "Clearly, the will here is to transport Carige into a bigger bank. However, they are still operating business as usual, serving a specific area of Italy with mortgages and other products, so they needed long-term funding," said a banker close to Thursday's new issue. "A covered bond was an obvious choice for providing the cheapest possible source of long-term financing." The issuer's situation is reflected in the obbligazioni bancarie garantite's expected ratings of Baa3/BBB (Moody's/DBRS) - capped by the issuer's ratings of Caa2/B(low). The deal is one of the lowest-rated euro benchmark covered bonds investors can buy. Most Italian covered bonds are rated Double A in contrast. "[The price] needs to be high on the mid-swaps basis just because of the rating - it's essentially the same as the one from Republic of Italy," said a banker away from the deal. "So then you realise 'okay, what is my incentive to buy this through Italy when I won't even have a better rating?'" While the deal is eligible for the ECB's covered bond purchase programme, its Triple B ratings mean it is only LCR Level 2B eligible, according to the leads. That also warranted some additional pick-up as most other Italian covered bonds are Level 1B eligible. However, Bernd Volk, head of European covered bond and agency research at Deutsche Bank, wrote that with a €2.66bn cover pool translating to an overcollateralisation level of 156%, and with committed overcollateralisation of 22% and a Moody's collateral score of 7.7%, "investor protection seems stronger than the low covered bond rating suggests".Investment proposition The deal is Carige's first benchmark covered bond since October 2015, when it sold a €500m deal that matured in January 2021. The bank's only other benchmark-sized OBG, a €600m deal, is set to mature next week. With few comparables available, the price discovery process was directed by investor feedback received during a two day roadshow. On Thursday morning, the deal was marketed with initial price thoughts of mid-swaps plus the high 60s for an expected size of €500m, via Commerzbank, Credit Suisse, IMI-Intesa Sanpaolo, NatWest Markets and UBS. The spread was set at 57bp and the size raised to €750m. The final spread is the widest for a euro benchmark covered bond since March 2019, according to IFR data, and offered a pick-up of around 10bp versus the Italian sovereign. The level proved to be sufficient compensation for many investors with the book closing in excess of €1.2bn, excluding lead orders. Bankers also pointed to the substantial progress made by the bank's new management in restructuring and improving asset quality. Carige has cut its gross non-performing ex
The IG primary is hosting three offerings today, with a jumbo 9-part AerCap bond deal the main attraction. On the economic data front, some positive news as new claims for unemployment benefits dropped to a 19-month low last week and it was also the second straight week that claims remained below 300,000, according to Reuters. The numbers did not do much for US stocks, which opened in negative to mixed territory. Meanwhile, the US Treasury market was impacted by rate lock activity because of the AerCap offering, IFR Markets reported. The deal was "behind some of the sharp pullback across the Treasury curve as the deal got rate-locks with the paying in swaps neutralized by the hit to Treasuries," IFR reported. In morning trade, the benchmark US Treasury 10-year note yield was hovering around 1.66%. In the IG primary yesterday, four issuers raised US$7.5bn, pushing weekly issuance to US$31.63bn and October volume to US$77.505bn, according to IFR data. The average new issue concession was 5.0bp, down from 13.5bp on Tuesday, while the average break performance was 0.8bp tighter on Wednesday, down from 7.5bp tighter on Tuesday. This week's new issues are trading 3bp tighter on average from pricing. One issuer raised US$675m in the high-yield primary market on Wednesday, according to IFR. The average IG bond spread on Wednesday remained unchanged at 89bp for the fourth consecutive market session and the average HY spread edged in 2bp to 307bp, according to ICE BofA data. HIGH GRADE Aircraft lessor AerCap is marketing senior unsecured notes to take out the US$24bn of committed financing for its purchase of GE Capital's Aviation Services business. Announced in March, the acquisition was valued at around US$30bn. AerCap held investor calls on Wednesday and today for the offering. The lessor is looking to price fixed tranches that will include a two-year, three-year, three-year non-call one, five-year, seven-year, 10-year, 12-year, 20-year. The deal will also have a single three-year floater. Initial price thoughts for the fixed maturities range between 90bp over Treasuries to 205bp over, and 90bp over SOFR for the floating-rate note. Market participants said investment-grade investors are eager to participate in jumbo bond offerings as they provide an opportunity to improve their portfolio's liquidity. But the decline in large M&A activity this year has limited the size of investment-grade offerings. “Most deals that have come this year have been quite a bit smaller than previously. That means we have more deal volume and smaller transaction sizes. I do think as a result there is some good pent-up demand for these larger transactions," said a syndicate banker. Another deal will come from Banner Health, which announced a US$422m two-part senior unsecured note consisting of a US$100m 10-year and a US$322m 20-year. And Banco Santander Chile rounds out the trio of IG offerings today. HIGH YIELD Two deals are expected to price in the high-yield bond market on Thursday. Deepwater energy exploration and production company Kosmos Energy is expected to raise US$400m with a 5.5-year non-call two senior unsecured note, with initial price thoughts at 8.25% area for the B+/B rated bond. Proceeds will be used to fund the acquisition of Anadarko WCTP Company. Clayton, Dubilier and Rice-owned packaging company LABL Inc (Multi-Color) is expected to price US$750m of senior secured notes due 2028 and US$460m of senior notes due 2029 to fund its merger with Fort Dearborn. Research firm Covenant Review highlighted a litany of loose terms in the documentation for the deal, such as a "a wildly off-market 'hookie dook'-like provision that allows any debt under any Debt covenant carveout to be secured". Covenant Review also noted there is no financial ratio condition to access the restricted payments build-up basket, which would allow the payment of dividends or other "sponsor shenanigans" at a time when the company has become distressed. STRUCTURED
Cades brought the largest US dollar SSA deal of the week on Thursday, raising US$3bn with a five-year social benchmark that, after a slow start, attracted enough interest to be subscribed twice over. The transaction comes after four non-US-based issuers have raised dollars in recent sessions, with Finnvera on Wednesday and Kommunalbanken, NRW.Bank and PSP Capital the day before all meeting with solid responses. A final order book for Cades of US$6bn, including US$350m JLM interest, is by far the largest of the week but still some way short of the demand seen for the borrower's previous deals, with its last five-year social, a US$5bn trade in early February, attracting orders in excess of US$9.5bn. The spread for the October 2026 Reg S/144A 3(c)(7) paper was set at Libor mid-swaps plus 5bp, tightening 1bp from IPTs, via BNP Paribas, Citigroup, HSBC and Societe Generale. Each of the four previous SSA deals in the currency this week also tightened by 1bp. “It just tells you that maybe the pricing power has dropped a little for issuers," said a banker. "Not too much, and these are all still great results, but it’s not quite like the peak of the market we had with the EIB deal and a bunch of other examples. We have maybe just come off the peak a little bit, but not too far.” The European Investment Bank reopened the fixed-rate US dollar market with a bang in late August, with a US$3bn 0.75% October 2026 Global that priced at a razor-thin margin over government paper, printing at a mere 9.6bp over the 0.625% July 2026 US Treasury – the borrower's tightest pricing since the financial crisis. The transaction also amassed a final order book of more than US$15.5bn – EIB's largest book to date for a trade in the currency. Order books for recent deals have been far less spectacular, with the other SSA offerings this week all attracting demand around the US$2bn mark. “I would hesitate to talk about uncertainty and inflation if all these order books were still blowout," said the senior DCM banker. "But dollar SSAs have been a pretty impressive place all year and we are getting into year-end, so the fact that order books aren’t total blowouts shouldn’t be too concerning. The fact that investors are still buying this stuff at these levels is impressive in itself, and the fact that order books are a bit lower is not too big a surprise.” Euro contrast Though demand in US dollars has become more measured, in euros signs of exuberance persist, with Italy attracting a bumper book for its green bond tap and KfW breaking its demand record with a short-dated transaction in recent days. “If you compare the books on US dollar trades versus euros, they are clearly smaller, but the quality isn’t bad either," said a second banker. "If anything, you just don’t get the fluff that you get in the euro market, where there’s a lot of inflation.” The diminishing order book sizes and tight valuations in dollars could be seen to suggest a repricing will occur, but this is unlikely to play out in the near term, according to the second banker. “Look at the valuations. Everything is so tight. It is tight versus Libor, tight versus US Treasuries, but I wouldn’t say that paper is not well sought-after," he said. "Yes, it’s not the same hype as in euros, but you don’t have a pre-defined exit like you have in the euro market with the ECB buying. In theory, yes, with levels as tight as they are we should see a repricing, but I don’t think it’s in the immediate future.”
The IG primary is hosting three offerings today, with a jumbo 9-part AerCap bond deal the main attraction. On the economic data front, some positive news as new claims for unemployment benefits dropped to a 19-month low last week and it was also the second straight week that claims remained below 300,000, according to Reuters. The numbers did not do much for US stocks, which opened in negative to mixed territory. Meanwhile, the US Treasury market was impacted by rate lock activity because of the AerCap offering, IFR Markets reported. The deal was "behind some of the sharp pullback across the Treasury curve as the deal got rate-locks with the paying in swaps neutralized by the hit to Treasuries," IFR reported. In morning trade, the benchmark US Treasury 10-year note yield was hovering around 1.66%. In the IG primary yesterday, four issuers raised US$7.5bn, pushing weekly issuance to US$31.63bn and October volume to US$77.505bn, according to IFR data. The average new issue concession was 5.0bp, down from 13.5bp on Tuesday, while the average break performance was 0.8bp tighter on Wednesday, down from 7.5bp tighter on Tuesday. This week's new issues are trading 3bp tighter on average from pricing. One issuer raised US$675m in the high-yield primary market on Wednesday, according to IFR. The average IG bond spread on Wednesday remained unchanged at 89bp for the fourth consecutive market session and the average HY spread edged in 2bp to 307bp, according to ICE BofA data. HIGH GRADE Aircraft lessor AerCap is marketing senior unsecured notes to take out the US$24bn of committed financing for its purchase of GE Capital's Aviation Services business. Announced in March, the acquisition was valued at around US$30bn. AerCap held investor calls on Wednesday and today for the offering. The lessor is looking to price fixed tranches that will include a two-year, three-year, three-year non-call one, five-year, seven-year, 10-year, 12-year, 20-year. The deal will also have a single three-year floater. Initial price thoughts for the fixed maturities range between 90bp over Treasuries to 205bp over, and 90bp over SOFR for the floating-rate note. Market participants said investment-grade investors are eager to participate in jumbo bond offerings as they provide an opportunity to improve their portfolio's liquidity. But the decline in large M&A activity this year has limited the size of investment-grade offerings. “Most deals that have come this year have been quite a bit smaller than previously. That means we have more deal volume and smaller transaction sizes. I do think as a result there is some good pent-up demand for these larger transactions," said a syndicate banker. Another deal will come from Banner Health, which announced a US$422m two-part senior unsecured note consisting of a US$100m 10-year and a US$322m 20-year. And Banco Santander Chile rounds out the trio of IG offerings today. HIGH YIELD Two deals are expected to price in the high-yield bond market on Thursday. Deepwater energy exploration and production company Kosmos Energy is expected to raise US$400m with a 5.5-year non-call two senior unsecured note, with initial price thoughts at 8.25% area for the B+/B rated bond. Proceeds will be used to fund the acquisition of Anadarko WCTP Company. Clayton, Dubilier and Rice-owned packaging company LABL Inc (Multi-Color) is expected to price US$750m of senior secured notes due 2028 and US$460m of senior notes due 2029 to fund its merger with Fort Dearborn. Research firm Covenant Review highlighted a litany of loose terms in the documentation for the deal, such as a "a wildly off-market 'hookie dook'-like provision that allows any debt under any Debt covenant carveout to be secured". Covenant Review also noted there is no financial ratio condition to access the restricted payments build-up basket, which would allow the payment of dividends or other "sponsor shenanigans" at a time when the company has become distressed. STRUCTURED
The banks that underwrote Morrisons' £6.6bn leveraged buyout may have a tough time selling down the debt after bonds issued by fellow private equity-owned UK supermarket Asda tumbled in the secondary market earlier this week. Asda bonds backing its £3.75bn leveraged buyout fell by as much as two points after the company said on Monday that it would have to raise an additional £500m and shell out £250m in cash to redeem debt after the sale of its petrol forecourts business fell through. The sale was to form part of a complex financing for the buyout of Asda by Mohsin and Zuber Issa and their private equity partner, TDR Capital, which would have seen the brothers' EG Group buy the petrol stations for £750m. Investors were puzzled by the collapse of the sale, with one bondholder saying that it was because of working capital issues, with a disagreement over terms. Irrespective of the reason, investors said that supermarkets are facing difficult circumstances and that Asda's new debt sale is adding pressure onto Morrisons' upcoming LBO. Earlier this month US private equity firm Clayton, Dubilier & Rice won a £7bn auction process to buy Morrisons, the UK's fourth largest supermarket, in a highly contested takeover. "Supermarkets are in a tougher place than they were six to seven months ago, because of a combination of things," said a high-yield bond investor. "The [collapse of the petrol forecourts sale] puts a bit of weight on Asda, but it puts a lot of pressure on the Morrisons deal, which will be really interesting now. It involves a lot of debt." Under pressure A combination of rising rates, supply chain snarls and inflationary risks had already caused high-yield bonds to underperform, including Asda's, even before the announcement on the petrol stations. Asda's £2.25bn 3.25% February 2026s - the largest sterling high-yield bond ever issued - are now bid at 95.79, according to Tradeweb. The subordinated bonds - the £500m 4% February 2027s - are bid at 93.70. Those price performances are leading some investors to take a more bearish view on Morrisons' prospects. "Morrisons is coming more levered and more stretched than [Asda]," said a second high-yield bond investor. "How different are these two businesses really? If anyone feels uncomfortable, it's the underwriting banks which are looking at their direct comp trading down in secondary." Goldman Sachs, BNP Paribas, Bank of America and Mizuho provided the underwritten financing for the deal, and were joined in September by eight further banks. The lead banks are set to earn around £15m-£20m in fees. Bank of America declined to comment. Spokespeople for the other three banks did not immediately return comment. Manageable, for now Bankers away from the deal said that the risks are manageable for now. "It's a very good asset," said one. "I don't think that the leverage is too high. There will probably be some chat around pricing and terms, and tranche sizes will be important - as well as what the market looks like and how much sterling capacity there is. But all those levers will come into play when the deal comes." Financing for the buyout is set to comprise a £2bn term loan B, £2.4bn bridge to senior secured notes and a £1.2bn junior secured notes bridge facility. It also includes a £1bn revolving credit facility. The senior term loan facility and the bridge facilities are expected to be drawn by November 11, the date by which the takeover is set to be completed. There is also a £1.8bn equity cheque. The bridge loan will be refinanced with up to £3.4bn-equivalent in high-yield bonds. Yields on the senior secured notes are capped at 5.25%, while the junior sterling bonds are capped at 6.5% and the junior euro notes at 5.75%. Standard flex is around 125bp-150bp. Morrisons has also announced a tender offer for £1.1bn of its investment-grade rated bonds due 2023, 2026, 2029 and 2
Cades brought the largest US dollar SSA deal of the week on Thursday, raising US$3bn with a five-year social benchmark that, after a slow start, attracted enough interest to be subscribed twice over. The transaction comes after four non-US-based issuers have raised dollars in recent sessions, with Finnvera on Wednesday and Kommunalbanken, NRW.Bank and PSP Capital the day before all meeting with solid responses. A final order book for Cades of US$6bn, including US$350m JLM interest, is by far the largest of the week but still some way short of the demand seen for the borrower's previous deals, with its last five-year social, a US$5bn trade in early February, attracting orders in excess of US$9.5bn. The spread for the October 2026 Reg S/144A 3(c)(7) paper was set at Libor mid-swaps plus 5bp, tightening 1bp from IPTs, via BNP Paribas, Citigroup, HSBC and Societe Generale. Each of the four previous SSA deals in the currency this week also tightened by 1bp. “It just tells you that maybe the pricing power has dropped a little for issuers," said a banker. "Not too much, and these are all still great results, but it’s not quite like the peak of the market we had with the EIB deal and a bunch of other examples. We have maybe just come off the peak a little bit, but not too far.” The European Investment Bank reopened the fixed-rate US dollar market with a bang in late August, with a US$3bn 0.75% October 2026 Global that priced at a razor-thin margin over government paper, printing at a mere 9.6bp over the 0.625% July 2026 US Treasury – the borrower's tightest pricing since the financial crisis. The transaction also amassed a final order book of more than US$15.5bn – EIB's largest book to date for a trade in the currency. Order books for recent deals have been far less spectacular, with the other SSA offerings this week all attracting demand around the US$2bn mark. “I would hesitate to talk about uncertainty and inflation if all these order books were still blowout," said the senior DCM banker. "But dollar SSAs have been a pretty impressive place all year and we are getting into year-end, so the fact that order books aren’t total blowouts shouldn’t be too concerning. The fact that investors are still buying this stuff at these levels is impressive in itself, and the fact that order books are a bit lower is not too big a surprise.” Euro contrast Though demand in US dollars has become more measured, in euros signs of exuberance persist, with Italy attracting a bumper book for its green bond tap and KfW breaking its demand record with a short-dated transaction in recent days. “If you compare the books on US dollar trades versus euros, they are clearly smaller, but the quality isn’t bad either," said a second banker. "If anything, you just don’t get the fluff that you get in the euro market, where there’s a lot of inflation.” The diminishing order book sizes and tight valuations in dollars could be seen to suggest a repricing will occur, but this is unlikely to play out in the near term, according to the second banker. “Look at the valuations. Everything is so tight. It is tight versus Libor, tight versus US Treasuries, but I wouldn’t say that paper is not well sought-after," he said. "Yes, it’s not the same hype as in euros, but you don’t have a pre-defined exit like you have in the euro market with the ECB buying. In theory, yes, with levels as tight as they are we should see a repricing, but I don’t think it’s in the immediate future.”
Medical device manufacturer Werfenlife sustained the strong run of new issue executions that has characterised Europe's corporate primary this week, with its inaugural bond issue significantly oversubscribed. The borrower (BBB– from S&P) took the decision to enter the bond market to diversify away from bank funding sources and opted for a sub-benchmark size, selling a €300m five-year. For an inaugural sub-benchmark deal at the weaker end of the Triple B rating bracket, bankers said that a peak book of over €1.7bn, which only fell to €1.6bn, was a strong result given the reduced investor universe for this size of deal. BNP Paribas and HSBC, acting as global coordinators, and BBVA, CaixaBank, Deutsche Bank and Santander as bookrunners, set the spread at 65bp over mid-swaps, having started marketing the paper at 90bp–95bp. To inform pricing, leads used bonds from sector peers such as H Lundbeck (BBB–), Eurofins Scientific (Baa3/–/BBB–) and Molnlycke (BBB–). A more positive tone has been pervading the primary market this week, with syndicate officials saying accounts are appearing more constructive, with the volatility in rates having subsided somewhat. Werfen is not the first little-known sub-benchmark issuer to tap the market and come away with a strong result in recent days. On Wednesday, Hitachi Capital UK (A–) issued its inaugural €325m 0% October 2024 green bond off a book of €1.1bn, with what leads believed was a 0bp concession. It was only the issuer’s second ever public bond issue. One factor that likely benefited both Hitachi and Werfen was the short maturities they were looking at. Investors are increasingly showing a preference for shorter-duration products. “Because of the backing up [in rates] we have seen recently, we are certainly cautious around the long end, but we do see opportunities in shorter duration,” said one fund manager. Euro first There is also a euro debut in the pipeline from Blackstone Private Credit Fund, a fund which focuses on senior secured loans to sponsor-backed US middle market companies. Moody’s noted in September that the company’s funding structure is reliant on secured revolving credit and bilateral borrowing capacity, which, according to the ratings agency, encumbers its investments, constrains its liquidity and has resulted in maturity concentrations in 2023 and 2026. Moody's was therefore expecting the fund to consider new senior unsecured bond issuance. This prediction has come good. The issuer has selected Deutsche Bank as global coordinator and Barclays and Societe Generale as bookrunners to arrange investor meetings taking place on October 21 and 22 for a euro benchmark five-year and/or a seven to 10-year note. The new notes are due to be rated Baa3 by Moody’s and BBB (low) by DBRS. The issuer spans the divide between corporate and FIG and at least one of the leads is running the trade through its FIG desk. For many US issuers, the low yields available in the euro market have proved a strong draw this year. However, for global investors who have the ability to be selective about whether they take dollar or euro exposure to any one credit, the appeal of an issuer’s euro paper is limited. “You earn a decent premium for the same risk in US dollars rather than euros on a currency-hedged basis,” said Maria Staeheli, senior portfolio manager at Fisch Asset Management. “The thing that makes people not exploit that opportunity to its fullest extent is rates volatility. If rates volatility is going to persist, and we think it is, then this premium will be there for a while, giving those investors that can be comfortable with that volatility an advantage.”
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