Trading volumes in credit default swaps linked to European banks have increased sharply in recent weeks, undercutting theories from regulators and investors that thin trading in illiquid markets drove extraordinary moves in the cost of default insurance on banks such as Deutsche Bank and triggered a broader meltdown. Regulators including the European Central Bank have sought to blame a rout in European bank stocks last week on a dramatic move in CDS on Deutsche Bank. Bloomberg reported that regulators have pinpointed a roughly €5m transaction on swaps referencing the German lender’s junior debt that they believe may have fuelled the dramatic sell-off on March 24. But industry-wide data of CDS transactions reported to the Depository Trust & Clearing Corp paints a different picture of these markets. European bank CDS trading volumes have risen steeply since concerns began to mount earlier this month over the future of Credit Suisse, casting doubt on the ability of one or two small trades to move the entire market. There were 277 CDS transactions on Deutsche Bank for a total of US$1.1bn in the week following UBS’s takeover of Credit Suisse, according to the DTCC data. That represents a more than four-fold increase by trade count and doubling in notional transacted compared with average volumes over the first 10 weeks of the year. “From my experience, there are decent enough trading volumes in these names to reflect the economic reality of the situation. The idea that one trade can move the whole market is totally exaggerated,” said Athanassios Diplas, a veteran trader who helped design much of the modern CDS market architecture. "Away from the Twittersphere, no market professional is going to change their fundamental views ... on a credit based on a US$5m trade," he added, referring to the reported Deutsche swaps transaction. The DTCC data didn't specify how many reported transactions were linked to Deutsche's senior or junior debt. Trading activity tends to concentrate on senior CDS, which usually serve as the main reference point for investors and analysts tracking these markets. Moves in bank CDS have attracted heightened scrutiny from regulators and investors following an increase in stress in the European banking system. Many highlighted a surge in Credit Suisse’s CDS levels before its emergency rescue as a symptom of its ailing fortunes. Other bank CDS also widened in the week before UBS’s takeover of its former rival, but the moves were far more subdued. That changed following the announcement of Credit Suisse’s rescue and the wiping out of its Additional Tier 1 bonds, which raised concerns about the value of these securities in the broader market. Five-year senior CDS on Deutsche jumped as high as 222bp on March 24, according to S&P Global Market Intelligence, up from 142bp two days before, while CDS on other banks such as Barclays and UBS came under pressure too. Banks stocks also took a dive, with shares in Deutsche declining as much as 14% that day. Dim view Some investors and regulators have taken a dim view of the alleged role of CDS in the turmoil. Andrea Enria, chair of the European Central Bank’s supervisory board, has called for a review of the market, claiming “opaque” CDS trading had contaminated bank stock prices and could cause deposit outflows. One holder of Additional Tier 1 bonds agreed, calling the situation around Deutsche “completely unwarranted and completely unjustified", he said. “Deutsche Bank is not defaulting, it is not losing deposits, it is not losing business. It was just somebody decided to buy large notional amounts of very short-dated CDS and these trades go public and they trigger all sorts of unwinds and then you break the CDS market." AT1 bonds have sold off dramatically in the past few weeks both before and after Credit Suisse's AT1s were wiped out by Swiss regulators. While regulators conduct their re
The IFR Awards Gala Dinner was held on Monday in the presence of Her Royal Highness The Princess Royal who attended in her role as patron of Save the Children. To see the Flickr gallery of photos from the night – and download the photos – please click here. The dinner was held at the Grosvenor House hotel in London with more than 650 guests in attendance, including Vice Admiral Sir Tim Laurence who accompanied Her Royal Highness. The Princess Royal presented the trophy for Bank of the Year 2022 to Olivier Osty, head of global markets at BNP Paribas. Jonny Gould did double duties with a bravura performance running the charity tombstone to raise funds for Save the Children and hosting the awards ceremony. The awards were presented by IFR editor Matthew Davies. Though 2022 was a difficult year for banks – and the start of 2023 has been even worse – attendees dug deep to raise around £1m in the tombstone, with the final total due shortly. Among them was £200,000 from Citigroup, another massive donation from the US bank that has now donated a total of £1m over the past four years. BNP Paribas secured the bookrunner slot with an extraordinary donation of £500,000. It was also the big winner of the night collecting six trophies across DCM, ECM, derivatives and sustainability, in addition to Bank of the Year. Donations from individuals were also substantial at £54,667. The Princess Royal spoke about the work of Save the Children and the importance of the banking community's support each year through the IFR Awards. Her Royal Highness was present for the first tombstone auction in January 1998 and has made the event part of her calendar ever since, missing only a couple of occasions in the intervening years. The tombstone is consistently the biggest single fundraising event for Save the Children and has raised over £31m to date. The money goes in to Save the Children's flexible funds that allow the charity to respond immediately to crises around the world. In the past 12 months that has included responding to the earthquake in Turkey and Syria, floods in Pakistan, famine in the Horn of Africa and the war in Ukraine. Davies and deputy editor Owen Wild visited Uganda with Her Royal Highness and Sir Tim in October to see programmes part-funded by the IFR Awards. These included catch-up clubs to help children recover from lost learning due to school closures during coronavirus lockdowns, with the success of this programme meaning it is now being rolled out in other countries around the world.
Having just recently agreed to a merger for its inaugural vehicle, Ares Management filed late Wednesday for a new US$400m SPAC IPO, proving at least one sponsor still views the blank check product as a viable funding tool. Ares Acquisition II, the new SPAC, features an overfunded trust, like all IPOs in the current vintage, allowing it to take advantage of the past year’s surge in interest rates. Ares plans to lend the SPAC US$4m to secure US$404m of funding in the trust, or US$10.10 per US$10.00 unit being sold to investors. The fact that two-year Treasuries are currently yielding 4.1% may have encouraged the investment manager to file for the SPAC IPO now, given the two-year cut-off for when SPACs have to find a merger target – or return money to investors. Ares II is structured with one-half warrant gearing. Combined with a relatively long investment horizon, this is a more aggressive structure than other recent SPAC IPOs. Ares II is co-headed by Ares Management co-founders David Kaplan and Michael Arougheti. Citigroup and UBS have signed on as joint books, which would make Ares II the first SPAC IPO by a bulge bracket firm since Credit Suisse (now to be absorbed by UBS) priced the Joe Reece-led US$120m SilverBox III late last month. In December, Ares Acquisition I agreed to merge with small modular nuclear reactor maker X-energy in a transaction valued at US$2bn. Redemptions left it carrying US$443m of cash into the merger, well shy of the US$1bn raised from its IPO. Existing X-energy shareholders rolled in their equity for a 75% stake. Ares I shares are trading today at US$10.33.
Having just recently agreed to a merger for its inaugural vehicle, Ares Management filed late Wednesday for a new US$400m SPAC IPO, proving at least one sponsor still views the blank check product as a viable funding tool. Ares Acquisition II, the new SPAC, features an overfunded trust, like all IPOs in the current vintage, allowing it to take advantage of the past year’s surge in interest rates. Ares plans to lend the SPAC US$4m to secure US$404m of funding in the trust, or US$10.10 per US$10.00 unit being sold to investors. The fact that two-year Treasuries are currently yielding 4.1% may have encouraged the investment manager to file for the SPAC IPO now, given the two-year cut-off for when SPACs have to find a merger target – or return money to investors. Ares II is structured with one-half warrant gearing. Combined with a relatively long investment horizon, this is a more aggressive structure than other recent SPAC IPOs. Ares II is co-headed by Ares Management co-founders David Kaplan and Michael Arougheti. Citigroup and UBS have signed on as joint books, which would make Ares II the first SPAC IPO by a bulge bracket firm since Credit Suisse (now to be absorbed by UBS) priced the Joe Reece-led US$120m SilverBox III late last month. In December, Ares Acquisition I agreed to merge with small modular nuclear reactor maker X-energy in a transaction valued at US$2bn. Redemptions left it carrying US$443m of cash into the merger, well shy of the US$1bn raised from its IPO. Existing X-energy shareholders rolled in their equity for a 75% stake. Ares I shares are trading today at US$10.33.
KfW has brought the last of the three major SSA currency markets to action, printing £300m via a quick tap of its 3.75% July 2027 line. But the trade – the first SSA deal in sterling for three weeks – appeared to struggle to cover its size and is not expected to spur huge follow-up supply. The leads BMO and Santander started marketing at guidance of 58bp area above Gilts. The spread stayed there until pricing. That level was 2bp back from the bid level, a banker away from the deal said. A lead on the print did not comment on fair value. Updates did not paint an encouraging picture for the trade. The last book showed interest at more than £200m, the lead said, short of the tap's size. The line now stands at £800m. The lead called KfW’s new deal “a tactical increase”, as opposed to a more strategic funding exercise. It took advantage of the currently functional market after buyers and issuers shied from the volatility churned by the collapses of Silicon Valley bank and Credit Suisse. The banker away did not see much read-across for the rest of the space looking at KfW's new print, the issuer being more frequent in the primary sterling market and having a more liquid curve than most SSAs. “It’s not really reopening the market,” the banker away said. “A £300m KfW tap doesn’t move the market.” The lead said the deal displayed the market was open for well-regarded issuers, however. “For top-tier names, there will continue to be tactical opportunities [in sterling],” he said
German auto parts company Schaeffler dashed back to the euro high-yield market on Thursday, adding a chunky €300m to its €500m five-year non-call two sustainability-linked senior secured payment-in-kind toggle note that priced less than a week ago. Final terms came 90 minutes after the tap was announced and 25 minutes before order books were slated to close. The tap was upsized by €100m and is set to price at 101. The holdco issuer, IHO Verwaltungs, printed the €500m 8.75% May 2028 SLB PIK-toggle note on Friday, yielding 9% thanks to an OID of 98.96. IPTs were in 9% area earlier in the day and bankers away from the transaction put fair value at 8%. The bond quickly traded up in secondary, illustrating strong investor demand for riskier bonds offering a high coupon and yield. According to Tradeweb data, it has been quoted above par since issue and it was last bid at 102.36, giving a yield of 8.20%. A price of 101 implies a yield of around 8.60%, CreditSights analysts said in a note. IHO Verwaltungs and the issue are both rated at Ba2/BB–/BB. Moody’s said in a note that the tap would not meaningfully change the issuer's credit quality given the higher interest would largely be offset by benefits from the longer maturity profile. The company plans to use the proceeds to redeem its €800m 3.625% May 2025 bond while maintaining financial and structural flexibility with an unchanged PIK toggle feature and covenant structure. Still, while the issuer’s Ba2 ratings with stable outlook are unchanged, they remain weakly positioned, Moody’s senior analyst Goetz Grossmann wrote in note. Grossmann estimates increased interest costs of €40m per year on a pro forma basis on the new €800m bond, including the tap. This would reduce its interest coverage well below Moody’s guidance of two times for this rating bracket in 2023 from 2.1 times in 2022. Despite the increase in interest costs and reduced interest coverage, the borrower's liquidity remains solid. He noted that the issuer's cash position totalled €115m as of January 31 and that the company had €640m available under its €800m revolving credit facility. “These cash sources comfortably exceed IHO-V's cash needs over the next 12–18 months, which are mainly holding costs, interest and income tax payments totaling around €240m annually,” he wrote, noting that its next debt maturity is the RCF in December 2024. The PIK toggle note, the first such structure to hit the market in nearly one and a half years, includes a 75bp coupon uplift in case of non-cash interest. The bond also adds sustainability aspects to the new financing structure based on the company’s sustainability-linked framework, in particular the 75% reduction of Schaeffler's absolute Scope 1 and 2 greenhouse gas emissions by 2025 from a 2019 baseline, according to a company presentation. There is a related step-up of 25bp per year. Deutsche Bank (B&D), BNP Paribas, Bank of America and Citigroup were joint bookrunners.
KfW has brought the last of the three major SSA currency markets to action, printing £300m via a quick tap of its 3.75% July 2027 line. But the trade – the first SSA deal in sterling for three weeks – appeared to struggle to cover its size and is not expected to spur huge follow-up supply. The leads BMO and Santander started marketing at guidance of 58bp area above Gilts. The spread stayed there until pricing. That level was 2bp back from the bid level, a banker away from the deal said. A lead on the print did not comment on fair value. Updates did not paint an encouraging picture for the trade. The last book showed interest at more than £200m, the lead said, short of the tap's size. The line now stands at £800m. The lead called KfW’s new deal “a tactical increase”, as opposed to a more strategic funding exercise. It took advantage of the currently functional market after buyers and issuers shied from the volatility churned by the collapses of Silicon Valley bank and Credit Suisse. The banker away did not see much read-across for the rest of the space looking at KfW's new print, the issuer being more frequent in the primary sterling market and having a more liquid curve than most SSAs. “It’s not really reopening the market,” the banker away said. “A £300m KfW tap doesn’t move the market.” The lead said the deal displayed the market was open for well-regarded issuers, however. “For top-tier names, there will continue to be tactical opportunities [in sterling],” he said
India's market regulator has introduced ESG disclosures for listed companies and a regulatory framework for ESG rating providers. The Securities and Exchange Board of India said the new disclosures, called the Business Responsibility and Sustainability Reporting Core, would be applied to the 150 top listed companies by market capitalisation from the coming fiscal year beginning on April 1 and would be gradually extended to the top 1,000 listed companies by the fiscal year ending in March 2027. The BRSR Core contains a limited set of key performance indicators for which listed entities should obtain reasonable assurance, Sebi said. The new standard will also be applied to the supply chains of the top 250 listed companies, which will need to abide, on a comply-or-explain basis, to the disclosure requirement from the fiscal year starting April 2024 and the assurance requirement from the following fiscal year. The market regulator said that ESG rating providers will be required to consider India and emerging market parameters, including environmental and social challenges, in their ratings and provide a "core ESG rating" based on the BRSR Core parameters. The Sebi board also approved a regulatory framework for ESG rating providers, which proposes to enhance transparency based on the ESG ratings rationale, the mitigation of conflict of interests by rating providers, the facilitation of transition finance and the provision of ratings based on assured data. In order to enhance transparency, prevent greenwashing and misselling of green securities, Sebi has mandated ESG schemes to invest at least 65% of assets under management in listed companies which have implemented BRSR Core. Mutual funds will be allowed to introduce a new scheme category and to launch multiple schemes based on ESG-related factors. At present, a mutual fund can only launch one ESG scheme. The extra flexibility is balanced by "greater emphasis on disclosures so that investors know exactly what they are putting their money into,",said Sebi chairperson Madhabi Puri Buch at a press conference on Wednesday. Sebi has mandated third-party assurance and certification by the board of asset managers to comply with ESG objectives. It has also mandated enhanced disclosures on voting decisions with specific focus on ESG, fund manager commentary and case studies highlighting how ESG strategy is applied on the investments. The Sebi board also gave in-principle approval to regulate index providers to ensure transparency, accountability in governance and administration of financial benchmarks in the securities market. It has barred domestic mutual funds from using foreign index providers that do not comply with domestic regulations. Separately, the market regulator has allowed private equity investors to become sponsors of mutual funds. Currently, India only allows financial services firms and corporates to back mutual funds.
German auto parts company Schaeffler dashed back to the euro high-yield market on Thursday, adding a chunky €300m to its €500m five-year non-call two sustainability-linked senior secured payment-in-kind toggle note that priced less than a week ago. Final terms came 90 minutes after the tap was announced and 25 minutes before order books were slated to close. The tap was upsized by €100m and is set to price at 101. The holdco issuer, IHO Verwaltungs, printed the €500m 8.75% May 2028 SLB PIK-toggle note on Friday, yielding 9% thanks to an OID of 98.96. IPTs were in 9% area earlier in the day and bankers away from the transaction put fair value at 8%. The bond quickly traded up in secondary, illustrating strong investor demand for riskier bonds offering a high coupon and yield. According to Tradeweb data, it has been quoted above par since issue and it was last bid at 102.36, giving a yield of 8.20%. A price of 101 implies a yield of around 8.60%, CreditSights analysts said in a note. IHO Verwaltungs and the issue are both rated at Ba2/BB–/BB. Moody’s said in a note that the tap would not meaningfully change the issuer's credit quality given the higher interest would largely be offset by benefits from the longer maturity profile. The company plans to use the proceeds to redeem its €800m 3.625% May 2025 bond while maintaining financial and structural flexibility with an unchanged PIK toggle feature and covenant structure. Still, while the issuer’s Ba2 ratings with stable outlook are unchanged, they remain weakly positioned, Moody’s senior analyst Goetz Grossmann wrote in note. Grossmann estimates increased interest costs of €40m per year on a pro forma basis on the new €800m bond, including the tap. This would reduce its interest coverage well below Moody’s guidance of two times for this rating bracket in 2023 from 2.1 times in 2022. Despite the increase in interest costs and reduced interest coverage, the borrower's liquidity remains solid. He noted that the issuer's cash position totalled €115m as of January 31 and that the company had €640m available under its €800m revolving credit facility. “These cash sources comfortably exceed IHO-V's cash needs over the next 12–18 months, which are mainly holding costs, interest and income tax payments totaling around €240m annually,” he wrote, noting that its next debt maturity is the RCF in December 2024. The PIK toggle note, the first such structure to hit the market in nearly one and a half years, includes a 75bp coupon uplift in case of non-cash interest. The bond also adds sustainability aspects to the new financing structure based on the company’s sustainability-linked framework, in particular the 75% reduction of Schaeffler's absolute Scope 1 and 2 greenhouse gas emissions by 2025 from a 2019 baseline, according to a company presentation. There is a related step-up of 25bp per year. Deutsche Bank (B&D), BNP Paribas, Bank of America and Citigroup were joint bookrunners.
Leaning on its rising star status, Nexans is set to price on Wednesday an upsized five-year inaugural sustainability-linked bond that will refinance debt maturing this year. The French cable manufacturer is set to raise €400m, €75m more than initially expected, after management said they would consider increasing the amount depending on market conditions. The coupon was set at 5.5% at final terms for the April 2028 bond, with the transaction set to price at par. This is 25bp inside initial price thoughts of 5.75% area announced earlier in the day. Investors expected demand to drive the yield lower, highlighting the likelihood that the company will be moved to an investment-grade rating in the near future. Their estimations of fair value ranged from 5% to 5.25%. Marketing for the transaction started on Monday, drawing around 100 investors across a global investor call and small group meetings, according to an email update from a lead bank. Pricing indications came in the high 5s to 6%. Nexans has two bonds outstanding: a €325m 3.75% August 2023 callable in May and a €200m 2.75% April 2024 callable in January. Proceeds from the transaction are earmarked to refinance the shorter-dated note, management said. Market participants had anticipated a warm reception and smooth execution. A banker away from the deal said a few investors were already engaged following a non-deal roadshow earlier this month. S&P has a BB+ rating and a positive outlook on the issuer, which is a market leader and a well-liked credit, the banker said. Issuers and syndicate bankers are taking advantage of any opportune window to place deals, given market volatility, the banker said. Monday was “a good day” to kick off marketing as the Crossover index was tighter. If issuers don't seize the chance to issue, they could end up "waiting for ages" to tap the market, the banker said. The iTraxx Crossover index was quoted at 486bp on Monday, down from roughly 497bp at Friday’s close, according to Tradeweb. Credit spreads have widened over the past couple of weeks after a spate of US regional bank failures and the downfall of Credit Suisse sent shockwaves across the sector. However, high-yield bankers are less concerned now about execution risks, as pre-marketing has helped reduced uncertainty around investor commitments, though elevated funding costs remain an issue. “A lot of pre-marketing is going on, but the key thing is whether issuers are comfortable with pricing,” the banker said. Paying up The rare corporate issuers that have ventured into the market shortly before Nexans have had to pay up to borrow. High-grade Australian logistics company Brambles paid a new issue premium of around 35bp for a capped €500m 4.25% March 2031 in mid-March as concerns around the health of Credit Suisse gripped markets. “If an IG company has to pay a 35bp NIP, what’s a high-yield credit going to pay?” the banker said. In the euro high-yield market, German auto parts company Schaeffler also paid up to raise funds on Friday. It printed a €500m 8.75% five-year non-call two sustainability-linked senior secured PIK toggle note at a 9% yield via holdco IHO Verwaltungs. “IHO had to pay up. Fair value was estimated at around 8% and it came in at a 9% yield,” the banker added. The SLB structure could slightly reduce the cost of funding for Nexans. One high-yield investor said the trade looked interesting and would give credibility to the borrower. He also said a labelled bond typically trades inside comparable unlabelled debt. The greenium for a high-yield issuer is bigger than the 5bp–10bp on a high-grade deal, the investor said, adding the incentive for the issuer is the slightly cheaper cost of capital. The company published its sustainable financing framework this month enabling it to issue in green, social and sustainable formats as well as sustainability-linked. It opted for an SL
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