Some signs of weakness are creeping into the euro corporate market after bellwether issuer BMW ended up tightening pricing by just 15bp for its €1bn dual-tranche offering on Wednesday. However, conditions are far from terrible and investors are still happy to put cash to work, with BMW and the day's two other issuers, Portuguese utility EDP and Austrian brick-maker Wienerberger, ending with solid, albeit unspectacular, demand. "Maybe there's a little bit of fatigue coming from the macro side, especially for cyclical issues, but the result [on BMW's trade] still slightly surprised me because I expected them to tighten at least 25bp, considering the small size and how it started 35bp–40bp back [of fair value] on a good day," said a syndicate banker. The banker, who was on the EDP trade, added BMW's guidance update slightly spooked the global coordinators on his trade. The German automobile manufacturer (A2/A, Moody's/S&P) tightened pricing by only 10bp at guidance when it gained combined books of €2.2bn. While it is hard to pin down one specific reason to explain the weaker-than-expected demand for a low-beta name with a rock-solid balance sheet, Europe's investigation into Chinese electric vehicle subsidies could have weighed on demand. "This raises some concerns for [original equipment manufacturers] with heavy exposure to China. Indeed, BMW has significant exposure to China, with 33.1% of mix coming from the region, and any action taken by the EU could result in some retaliation from Beijing, which could include the implementation of tariffs on imported vehicles," wrote CreditSights analysts. The analysts also pointed out how tight BMW bonds trade compared to Mercedes Benz at the longer-end of the curve, though they are broadly in line with diversified industrial names such as Siemens and Schneider Electric. BMW's €500m five and €500m 10-year bonds landed at mid-swaps plus 55bp and 90bp, inside 70bp area and 105bp area IPTs, respectively, via Barclays, BayernLB, HSBC, ING and Santander. Sources spotted fair value at around 35bp and 70bp. The October 2028s and 2033s gained final books of over €950m and €1.2bn. The bonds were issued through BMW Finance. Weaker risk tone EDP (Baa2/BBB/BBB) also had to pay double-digit new issue premiums to raise €1.35bn from a two-tranche green bond offering. Final terms for a €600m 5.5-year bond and a €750m 8.5-year note were set at 90bp and 115bp, inside IPTs in the areas of 110bp and 140bp, respectively. The company's existing green bonds pointed to a fair value at around 75bp and 95bp. Though the primary market saw a better risk sentiment on Wednesday, it had to wrestle with a broader risk-off tone at the start of the week with investors grappling with the prospect of higher interest rates for longer. "Moving into the last quarter and a more challenging outlook, at this point, investors and risk takers could be forgiven to stay at the sideline before calling the shots for their next move," said a syndicate head. Still, EDP's trade gained solid orders. Final books for the April 2029s and April 2032s were €1.15bn and €2.15bn, respectively. The bonds were priced through EDP Servicios Financieros Espana and EDP is the keep well provider. JP Morgan and UniCredit are global coordinators. They were also joint bookrunners with CaixaBank, CaixaBI, Citi, ICBC, ING, Mizuho, Natixis, SMBC, Standard Chartered and Wells Fargo Securities. ING was also the ESG structuring bank. Sub-benchmark sails through More cyclical and local name Wienerberger (Baa3, Moody's) managed to get a sub-benchmark issue done, raising €350m from its debut sustainability-linked five-year bond. The October 2028s launched at 185bp, inside 200bp area IPTs, on final orders of more than €650m. The deal was the only pre-announced trade emerging from the pipeline on Wednesday, but marketing made sense, given how the company is faced with a severe downturn in new
A Brookfield joint venture is in the market this week with a US$665m commercial mortgage bond that refinances a loan on a major Illinois mall. Morgan Stanley, Wells Fargo, Citigroup and Goldman Sachs are bookrunners on the three-part fixed-rate offering, which is backed by the Oakbrook Center in a Chicago suburb. Brookfield and Institutional Mall Investors, a venture between the California Public Employees' Retirement System and real estate investment firm Miller Capital Advisory, jointly own the open-air super-regional mall. A person familiar with the deal said the offering, called BPR Trust 2023-BRK2, is slated to price by next week. The bond securitizes a US$700m five-year interest-only mortgage that the banks sponsor. The mortgage refinances a US$475m debt on the mall, hands over US$220m to Brookfield and IMI and pays for US$5m of closing costs, marketing materials show. The existing debt on the mall comprises a US$319m floating-rate first-lien mortgage and a US$156m mezzanine loan. A 2020 deal called BFLD Trust 2020-OBRK securitized the first-lien mortgage. The biggest piece of the five-year deal is a US$520.79m Triple A rated Class A note. Initial price thoughts are 250bp area over Treasuries. The remainder of the deal comprises a US$72.485m Double A rated Class B tranche and a US$71.725m Single A rated Class C portion. IPTs are plus 325bp area and plus 400bp area, respectively. The fundraising also includes two securities that total US$35m and are not being offered. The additional debt on the mall will bring its loan-to-value to 40.8%. The property is currently appraised at US$1.72bn, the marketing documents show. In a 2020 presale report, Moody's said the property was appraised at US$1.23bn. Oakbrook reported 2022 net operating income of US$76.36m, up from US$61.03m the year before, the documents show. Net operating income for the 12 months ending July 2023 was US$82.13m.
Bayerische Landesbank offered a wide spread to get a €300m 10.25NC5.25 green Tier 2 bond over the line on Wednesday against a backdrop of weakening markets. "All fine, all done in a very challenging environment, with equities down for a couple of days and with credit highly affected," a lead banker said. "It's clearly an investor market and they show you what they expect. It's not like in 2021, when BayernLB had much more pricing power." This was the German Landesbank's first euro subordinated offering in two years and the first such trade to come out of Germany since June. Leads BayernLB, ING, Natixis and UBS had publicly announced the trade on Monday and had been waiting for the right window to present itself. "We decided not to rush the transaction given the market backdrop and to wait one extra day. It was not an easy decision to move forward with the transaction. It was not a clear recommendation to go from the syndicate but the issuer decided to launch the trade," a second lead manager said. "That was the right decision and clearly the result is proving them right. We are ending with an order book above €500m and we managed to tighten by 25bp - a good outcome in a shaky market." Books opened at mid-swaps plus 400bp area for the no-grow trade. Fair value was hard to assess, market participants said, citing various approaches to the exercise and a broad range of estimates. "If you look at the issuer's outstanding low-coupon, low-reset, illiquid Tier 2 transactions, that puts fair value context in the 400s or even more," the first banker said. Others turned to recent subordinated supply from comparable issuers out of Germany, France, Spain and the Netherlands as markers. "This would put fair value in the context of 340bp on Monday [when the trade was announced], but after the recent moves, I would have said more in the context of 350bp," the first banker said. The execution was slow in pace but eventually the leads landed the trade at 375bp, as orders peaked above €625m. "It's pricing wide but demand is pretty limited," a third banker, away from the trade, said. "What's positive in this environment is that there are still trades being done, but they all come at a price and some at very high spreads. The senior and sub sets were working well in August and beginning of September – even much better than covereds – but this has changed over the past 10 trading days. We're still in a rates bear market, the trend is the same as last week and there's no real trigger in terms of negative news." The second banker said that the outcome wasn't that wide compared to the secondary levels of German comparables. "But I do think that the execution process, the fact that we had to wait a little bit, reflect the backdrop which is more difficult. We have seen a widening in German Tier 2s during execution, so clearly it was not an obvious decision for investors to consider the trade." Market participants also pointed out that BayernLB, which yielded 7.122%, priced with a marginal differential to the €500m 10.25NC5.25 Double B rated Tier 2 National Bank Greece launched at 8% on Tuesday. However, the first banker said NBG was a very different credit, belonging to a different buyer base. The deal sizes were different too. The order book experienced some attrition and closed at €500m with over 80 orders good at reoffer. "The number of orders is pretty good for a sub-benchmark transaction, if you take into consideration the fact that we are talking about a €300m deal and that a significant number of asset managers across Europe cannot consider transactions that are below €500m, which reduces the investor base," the second banker said. "If you look at the geography of investors, it's naturally dominated by German investors but you do have some nice diversification with Spain, for example, some UK, some French investors as well," he said. The green label was helpful to the trade which registered 60
Bayerische Landesbank offered a wide spread to get a €300m 10.25NC5.25 green Tier 2 bond over the line on Wednesday against a backdrop of weakening markets. "All fine, all done in a very challenging environment, with equities down for a couple of days and with credit highly affected," a lead banker said. "It's clearly an investor market and they show you what they expect. It's not like in 2021, when BayernLB had much more pricing power." This was the German Landesbank's first euro subordinated offering in two years and the first such trade to come out of Germany since June. Leads BayernLB, ING, Natixis and UBS had publicly announced the trade on Monday and had been waiting for the right window to present itself. "We decided not to rush the transaction given the market backdrop and to wait one extra day. It was not an easy decision to move forward with the transaction. It was not a clear recommendation to go from the syndicate but the issuer decided to launch the trade," a second lead manager said. "That was the right decision and clearly the result is proving them right. We are ending with an order book above €500m and we managed to tighten by 25bp - a good outcome in a shaky market." Books opened at mid-swaps plus 400bp area for the no-grow trade. Fair value was hard to assess, market participants said, citing various approaches to the exercise and a broad range of estimates. "If you look at the issuer's outstanding low-coupon, low-reset, illiquid Tier 2 transactions, that puts fair value context in the 400s or even more," the first banker said. Others turned to recent subordinated supply from comparable issuers out of Germany, France, Spain and the Netherlands as markers. "This would put fair value in the context of 340bp on Monday [when the trade was announced], but after the recent moves, I would have said more in the context of 350bp," the first banker said. The execution was slow in pace but eventually the leads landed the trade at 375bp, as orders peaked above €625m. "It's pricing wide but demand is pretty limited," a third banker, away from the trade, said. "What's positive in this environment is that there are still trades being done, but they all come at a price and some at very high spreads. The senior and sub sets were working well in August and beginning of September – even much better than covereds – but this has changed over the past 10 trading days. We're still in a rates bear market, the trend is the same as last week and there's no real trigger in terms of negative news." The second banker said that the outcome wasn't that wide compared to the secondary levels of German comparables. "But I do think that the execution process, the fact that we had to wait a little bit, reflect the backdrop which is more difficult. We have seen a widening in German Tier 2s during execution, so clearly it was not an obvious decision for investors to consider the trade." Market participants also pointed out that BayernLB, which yielded 7.122%, priced with a marginal differential to the €500m 10.25NC5.25 Double B rated Tier 2 National Bank Greece launched at 8% on Tuesday. However, the first banker said NBG was a very different credit, belonging to a different buyer base. The deal sizes were different too. The order book experienced some attrition and closed at €500m with over 80 orders good at reoffer. "The number of orders is pretty good for a sub-benchmark transaction, if you take into consideration the fact that we are talking about a €300m deal and that a significant number of asset managers across Europe cannot consider transactions that are below €500m, which reduces the investor base," the second banker said. "If you look at the geography of investors, it's naturally dominated by German investors but you do have some nice diversification with Spain, for example, some UK, some French investors as well," he said. The green label was helpful to the trade which registered 60
OTP Bank has shifted its funding activity back to the euro market with a new senior preferred offering, after focusing on US dollar issuance to meet its MREL requirements earlier in the year. Having already raised US$1.15bn of financing in dollars in 2023 across senior preferred and Tier 2 paper, the Hungarian lender has now revived its euro presence. “Them coming to euros, it’s based on investor feedback and on the issuer’s needs,” said one banker close to the deal. “The dollars went well but they also need to maintain a presence in the euro market.” OTP was able to fix the spread on a €650m four-year non-call three Reg S note at mid-swaps plus 265bp, having started out with initial price thoughts of 280bp–290bp. A second banker close to the transaction placed fair value in the 235bp area, using both the issuer’s dollar and euro seniors to guide his estimate. The final book of over €850m, having fallen from a peak of over €950m, came in lighter than the €1.15bn plus drawn by Tuesday’s €300m 5.375% 5NC4 green senior preferred from Slovenska sporitelna. However, there are some key differences between the credits and transactions, other than OTP’s Baa3/BBB+ (Moody's/Scope) issue ratings, versus Slovenska’s A2 (Moody's). “Someone like a Slovenska will be bought not only by CEE-focused investors but also by Western investment-grade investors using it as a yield enhancement versus the parent company,” the second banker said. “This is not something that you see with OTP.” Slovenska is a 100% owned subsidiary of Erste Group. OTP is a publicly traded company. Because of its need to meet MREL requirements, OTP is becoming a much more active issuer in the bond market. Across currencies and including today’s transaction, the issuer will have sold three international bonds in 2023. This compares with two in 2022 and none the year before, according to IFR data. OTP’s decision to focus on the dollar market earlier in the year was a direct consequence of this growing funding requirement. Because of its need to become a more frequent issuer, OTP wanted to diversify its investor base by tapping offshore dollar accounts. In May, OTP placed a US$500m 7.5% 4NC3 senior preferred, following the issue of a US$650m 8.75% 10.25NC5.25 Tier 2 in February. The issuer last tapped euro investors in November 2022, selling a €650m 7.35% 3.25NC2.25 senior preferred. Senior CEE bank issuance has been one of the core themes of the post-summer euro primary market, and of the year. Since late August, there has been close to €2bn of supply, according to IFR data. Year-to-date the figure exceeds €7.75bn. Market participants appear confident that there is capacity for more issuance, although investors may become more price sensitive. “There is room for more supply but it will be a question of price,” said the first banker. “There is appetite for this type of credit, we just need stability. Fibank hasn’t come out yet, but with any inaugural issuer it takes time to get your deal in place, and when you are sub-investment-grade and not a national champion, it can be difficult.” On September 11, Bulgaria’s First Investment Bank announced it was beginning investor meetings to discuss an inaugural €300m (expected) 3NC2 Reg S green senior preferred MREL-eligible bond, with an expected rating of B from Fitch. Last week, those close to the trade said they were still waiting to hear feedback from a handful of investors. Citigroup, JP Morgan, Societe Generale, UniCredit and OTP Bank acted as bookrunners on Wednesday’s trade.
A US$500m seven-year FRN from the World Bank on Wednesday was the second US dollar SSA deal to struggle in as many days, after weeks of what seemed like non-stop successes in the market. The supranational's floater, which followed a slow SFIL transaction on Tuesday, suggests that the solid demand that has turned out for SSA US dollar bonds since the market reopened in mid-August does not extend to more niche products. A banker on the World Bank deal and one away from the leads agreed that US dollar FRNs beyond the five-year mark are difficult to clear. "In our view, we have seen very limited demand for long-dated FRN paper, and by long-dated I mean anything longer than five years," the banker away said. "There is specific appetite... that drives [these] types of deals. But our feeling is that the long-dated FRN space is still relatively soft compared to the shorter part of the curve or the fixed-rate space." The widely held view that FRNs are less liquid, especially in the long-end, than their fixed rate cousins is motivating that softness, he said. At launch, books on the World Bank deal were over US$500m, including US$75m from the leads. "It looks like they [the World Bank] got what they wanted: a US$500m minimum, including some additional interest from the joint leads," the banker away said. "But it still confirms that the [longer FRN market] is still relatively soft." BMO, NBF, and HSBC ran the FRN. The October 2030 'sustainable development bond' carried a coupon of SOFR plus 46bp. Explaining why the World Bank targeted that more difficult part of the market, the lead banker said there was a sense that there was specific demand it could help satisfy.
OTP Bank has shifted its funding activity back to the euro market with a new senior preferred offering, after focusing on US dollar issuance to meet its MREL requirements earlier in the year. Having already raised US$1.15bn of financing in dollars in 2023 across senior preferred and Tier 2 paper, the Hungarian lender has now revived its euro presence. “Them coming to euros, it’s based on investor feedback and on the issuer’s needs,” said one banker close to the deal. “The dollars went well but they also need to maintain a presence in the euro market.” OTP was able to fix the spread on a €650m four-year non-call three Reg S note at mid-swaps plus 265bp, having started out with initial price thoughts of 280bp–290bp. A second banker close to the transaction placed fair value in the 235bp area, using both the issuer’s dollar and euro seniors to guide his estimate. The final book of over €850m, having fallen from a peak of over €950m, came in lighter than the €1.15bn plus drawn by Tuesday’s €300m 5.375% 5NC4 green senior preferred from Slovenska sporitelna. However, there are some key differences between the credits and transactions, other than OTP’s Baa3/BBB+ (Moody's/Scope) issue ratings, versus Slovenska’s A2 (Moody's). “Someone like a Slovenska will be bought not only by CEE-focused investors but also by Western investment-grade investors using it as a yield enhancement versus the parent company,” the second banker said. “This is not something that you see with OTP.” Slovenska is a 100% owned subsidiary of Erste Group. OTP is a publicly traded company. Because of its need to meet MREL requirements, OTP is becoming a much more active issuer in the bond market. Across currencies and including today’s transaction, the issuer will have sold three international bonds in 2023. This compares with two in 2022 and none the year before, according to IFR data. OTP’s decision to focus on the dollar market earlier in the year was a direct consequence of this growing funding requirement. Because of its need to become a more frequent issuer, OTP wanted to diversify its investor base by tapping offshore dollar accounts. In May, OTP placed a US$500m 7.5% 4NC3 senior preferred, following the issue of a US$650m 8.75% 10.25NC5.25 Tier 2 in February. The issuer last tapped euro investors in November 2022, selling a €650m 7.35% 3.25NC2.25 senior preferred. Senior CEE bank issuance has been one of the core themes of the post-summer euro primary market, and of the year. Since late August, there has been close to €2bn of supply, according to IFR data. Year-to-date the figure exceeds €7.75bn. Market participants appear confident that there is capacity for more issuance, although investors may become more price sensitive. “There is room for more supply but it will be a question of price,” said the first banker. “There is appetite for this type of credit, we just need stability. Fibank hasn’t come out yet, but with any inaugural issuer it takes time to get your deal in place, and when you are sub-investment-grade and not a national champion, it can be difficult.” On September 11, Bulgaria’s First Investment Bank announced it was beginning investor meetings to discuss an inaugural €300m (expected) 3NC2 Reg S green senior preferred MREL-eligible bond, with an expected rating of B from Fitch. Last week, those close to the trade said they were still waiting to hear feedback from a handful of investors. Citigroup, JP Morgan, Societe Generale, UniCredit and OTP Bank acted as bookrunners on Wednesday’s trade.
Piaggio is set to price a €250m seven-year non-call three senior note to refinance 2025 senior bonds on Wednesday, as the high-end scooter manufacturer receives strong backing from investors. Shortly after finishing its roadshow this morning, Vespa-owner Piaggio scooted into the market with price talk of high 6s, which was later revised lower to 6.5% (+/-0.125%). Order books were scheduled to close at 16:15 UK time. A banker with knowledge of the transaction said the deal was not pre-marketed in advance as it did not seem necessary for the well-known, Double B rated issuer. It has typically undertaken exchanges in the past. While existing bondholders could roll into the new issue, the banker said the transaction was open for everybody. The deal is intended to extend Piaggio's maturity profile. Despite their cyclical nature, luxury brands are deemed more resilient, said a banker away from the deal. "Piaggio has always priced pretty well. The credit proposal is more attractive [than that of other cyclically-exposed firms]. It's a grounded manufacturer even if consumer heavy." The deal was also attracting a lot of local investor interest, according to a second banker with knowledge of the transaction. "This is just a small deal, a pure refinancing," said the second banker. "It’s a good company and investors really like it. You can tell that by how well its bonds trade for the rating. I think even for a Double B this will be able to price quite aggressively, just because of the interest in the name and the size of the deal. They only need to find €250m and they’ll find that easily." Both Piaggio and the new bond are expected to carry ratings of Ba3/BB– from Moody's and S&P, respectively. The company has also obtained a new €200m revolving credit facility to refinance its existing one, according to a deal presentation. The facility will remain fully undrawn at closing, with the company's liquidity position above €560m as of June 23. BNP Paribas is B&D and joint global coordinator and physical bookrunner alongside Bank of America and IMI-Intesa Sanpaolo. Banca Akros, HSBC, ING and UniCredit are acting as joint bookrunners.
A US$500m seven-year FRN from the World Bank on Wednesday was the second US dollar SSA deal to struggle in as many days, after weeks of what seemed like non-stop successes in the market. The supranational's floater, which followed a slow SFIL transaction on Tuesday, suggests that the solid demand that has turned out for SSA US dollar bonds since the market reopened in mid-August does not extend to more niche products. A banker on the World Bank deal and one away from the leads agreed that US dollar FRNs beyond the five-year mark are difficult to clear. "In our view, we have seen very limited demand for long-dated FRN paper, and by long-dated I mean anything longer than five years," the banker away said. "There is specific appetite... that drives [these] types of deals. But our feeling is that the long-dated FRN space is still relatively soft compared to the shorter part of the curve or the fixed-rate space." The widely held view that FRNs are less liquid, especially in the long-end, than their fixed rate cousins is motivating that softness, he said. At launch, books on the World Bank deal were over US$500m, including US$75m from the leads. "It looks like they [the World Bank] got what they wanted: a US$500m minimum, including some additional interest from the joint leads," the banker away said. "But it still confirms that the [longer FRN market] is still relatively soft." BMO, NBF, and HSBC ran the FRN. The October 2030 'sustainable development bond' carried a coupon of SOFR plus 46bp. Explaining why the World Bank targeted that more difficult part of the market, the lead banker said there was a sense that there was specific demand it could help satisfy.
The restructuring plan of embattled property developer China Evergrande Group is in limbo after unexpected developments in the past days. Company chairman Hui Ka Yan has been placed under police surveillance, Bloomberg reported today, citing people with knowledge of the matter. The developer revealed in a stock exchange filing on Sunday that it is unable to issue new notes under its proposed restructuring plan, triggering a flurry of market concern. Evergrande cited the investigation of subsidiary Hengda Real Estate Group, which has been accused of violating information disclosure rules, as the reason. On Monday evening, Hengda also announced it missed principal and interest payments on a Rmb4bn (US$547m) bond due September 25. Evergrande shares were trading around 20% lower on Monday at HK$0.44 and fell further on Tuesday to HK$0.40. Some sources expressed their surprise that the market reacted so strongly to another misstep from such a troubled company, but there was also a recognition that the news dashes any optimism that Evergrande was finally making its way towards a restructuring. "There is limited visibility on the restructuring timeline. I don’t expect any concrete plan announced before the investigation of the company by the Chinese securities regulator is concluded," said Zerlina Zeng, senior credit analyst at CreditSights. Evergrande announced a restructuring plan for its US$22.7bn of offshore debt on March 22. Under the plan, bondholders were offered the option of swapping their existing notes into new A1 notes with a tenor of 10–12 years, or convert part of the notes to new A2 notes with tenors of 5–8 years and part to equity-linked instruments. The company's total onshore and offshore liabilities amount to over US$300bn, making it one of the world's most indebted companies. In a separate filing to HKEx on Friday, Evergrande said it would need to reassess the terms of the proposed restructuring because of weaker-than-expected sales. It has cancelled scheme meetings due to be held on September 25 and 26 regarding a restructuring of the group and of its subsidiaries Tianji Holding and Scenery Journey. Evergrande said it would make further announcements on the changes to the proposed restructuring plan when it had updates. Uncertainty looms The market expects the restructuring process to be lengthy, with recovery prospects uncertain, as reflected by the company's US dollar bonds, which are trading below 5 cents. Some fear the latest delay signals that the company could be headed to liquidation. Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, said it is possible that Evergrande could introduce another plan, but there is no certainty that creditors would be receptive. The company's next challenge is a winding-up petition hearing in Hong Kong on October 31. That has been postponed several times before and may be postponed again. Reuters reported on Tuesday that a group holding a significant amount of Evergrande's offshore bonds is planning to join the winding-up petition if the company does not submit a new restructuring plan by October 30. Zeng at CreditSights believes a liquidation over the next six months is not likely, as the Chinese government still holds the company responsible for the delivery of incomplete home projects. "Liquidation is not an ideal scenario for US dollar bondholders, who are deeply subordinated in the payment waterfall," she said. Charles Chang, Greater China country lead at S&P, agreed that liquidation was a last resort for investors because it yields the lowest recovery. "Investors' patience may be tested when hiccups come along in a restructuring," said Chang. "What's critical is that there is a good faith effort from the company to try and resolve the situation."
Bellwether