Welcome to IFR

CVS Health returned to the US high-grade bond market Wednesday with a US$4bn three-part offering to help fund an up to US$6bn tender offer. It is the second bond offering of the year from the pharmacy benefits manager and drug store retailer, which continues to look for ways to pay off debt from its US$69bn merger with Aetna back in 2018. CVS launched a US$1.5bn seven-year at 85bp over Treasuries, a US$1.25bn 10-year at 110bp over and a US$1.25bn 30-year at 135bp over. Spreads tightened 25bp-35bp from initial price thoughts. Since the size of the bond deal came in under the size of the tender offer, it is moderately deleveraging, according to a Moody's report. "CVS Health's Baa2 senior unsecured rating reflects the significant increase in the company's debt levels and weakening of credit metrics following the closing of the acquisition of Aetna," Moody's wrote in the report. "The company has reduced approximately US$11.75bn in net debt since closing of the transaction including the most recent US$2.75bn repayment in July 2020, and pro forma for the latest debt repayment we estimate that lease-adjusted debt/EBITDA improved to around 4.1x." Additionally, CVS is poised to print the notes at a lower coupon than the notes it is retiring, which will lower its interest expense cost, Moody's added. The tender includes three series of 2023 notes and two series of 2025s, which have coupon rates ranging from of 2.8% to 4.1%. Given that Treasury rates continue to trade near all-time lows, the implied yield on the 20-year at guidance would fall under the tendered notes at around 2.49%. "The tenders in 2023 and 2025 happen to be two of its three largest debt maturity years, so smoothing out its debt maturity profile is viewed favorably, particularly in this type of rate environment," one investor said. The results are much improved from its US$4bn four-part offering in March in which CVS priced a 3.75% 2030 at 295bp over Treasuries. That same note has since tightened in to a G-Spread of around 113.9bp earlier in the week — which would imply a flat to negative new issue concession on the new 10-year offering, according to MarketAxess data. One investor said new issue concessions looked about 5bp wide to the outstanding curve. Bank of America, Barclays and Goldman Sachs are bookrunners on the trade.

BON

2 min read

Americas, EMEA

William Hoffman

Bonds

UPDATE 1-Occidental tackles looming maturities with new debt raise

Updates deal size, investor comment Occidental Petroleum, the energy exploration and production company, is taking its second run at the junk bond market this year in an effort to tackle looming debt maturities. The company has been struggling under a heavy debt load after acquiring Anadarko last year and its CEO has made liability management its number one priority. But Occidental is hitting the market after another round of deteriorating financials. This week it recorded its fourth straight quarterly loss with a US$6.6bn impairment charge stemming from the collapse in energy prices earlier this year, according to Reuters. Today, it launched a US$3bn three-part offering of five, eight and 10-year unsecured bullet notes, with proceeds going to fund a tender for eight notes maturing between 2021-2023. Leads were able to upsize the deal from an initial US$1.5bn as well as bring pricing inside initial talk. An investor said it was no surprise to see the deal get upsized, given there is "insatiable appetite for high-yield" in a low-yield environment. It is the company's second high-yield bond offering since becoming a fallen angel earlier this year, after raising US$2bn in June in a deal that favored size over price. Tuesday's offering should land at much tighter levels than the company achieved in June. In June it raised US$2bn in a three-part offering of five, seven and ten-year notes that priced at yields of 8%, 8.5% and 8.875%. Those 2025, 2027 and 2030 notes have since compressed in the secondary market to yields of 5.54%, 6.16% and 6.79%, according to MarketAxess data. The new US$900m five-year, the US$600m eight-year and the US$1.5bn 10-year bonds are coming at a slight premium to those levels with leads launching the notes at 5.875%, 6.375% and 6.625%. That was inside price talk in the area of 6.00%, 6.375% and 6.625%. Still, Occidental bonds area still trading wide to its peers with similar Ba2/BB+/BB ratings, given the challenges facing the company. Average Double B bonds, which have an effective duration of 4.28 years, yield 3.88%, according to MarketAxess. DEBT LOAD The company has around US$4.5bn of bonds coming due in 2021, and total long-term net debt of US$36bn as of June 30. Tackling the company's debt load is a priority before increasing oil production, CEO Vicki Hollub said on the company's second quarter earnings call on August 11. "I don't really see us growing next year," she said, as the company uses "all available cash" to retire debt and address maturities. "So that's the highest priority for next year," said Hollub. As well as tapping the bond market the company is hoping to close around US$2bn of asset sales in 2020. The company is selling assets in Wyoming although has chosen not to sell assets in Algeria to Total, a sale that Algerian authorities had moved to block, according to a Reuters report.

BON

3 min read

Americas

David Bell

Bonds

Ford Motor Credit raises unsecured debt after earnings

Ford Motor Credit was set to raise US$2.25bn of high-yield bonds on Wednesday, underscoring it still had access to an unsecured market that it hopes to lean on less going forward. The financing arm of Ford Motor Company is hitting the market with a Ba2/BB+/BB+ rated unsecured deal after releasing better than expected earnings on July 30 and after S&P took the parent company's credit ratings off negative outlook on Tuesday. The company has launched US$1bn of three-year senior notes at 3.375% and US$1.25bn of seven-year notes at 4.125%, the tight end of price talk of 3.50% area and 4.25% area (+/-12.5bp), respectively. Ford Motor Credit bonds have rallied strongly with the outlook for consumer credit appearing less dire than feared earlier in the pandemic. The finance unit also has US$32bn of liquidity, according to an August investor presentation on Q2 earnings. "Ford Credit benefits from a very solid asset book that has performed through the cycles, has a well balanced capital structure, ample liquidity and benefits from the support agreement from the parent," said analysts at CreditSights. On the consumer credit side, the company said in the August presentation that weekly loan extensions had declined 96% from their peak in late March and were returning to pre-pandemic levels. Another encouraging sign is that 96% of extended loans had seen payments made after receiving extensions, the company said. Ford Credit expects to maintain leverage in the 8.1-9.1x range in 2020. The unsecured debt offering was in line with previous estimates of the company's funding needs in 2020, although Ford Motor Credit told investors to expect a higher mix of ABS in its funding plans going forward. Having issued US$5bn of unsecured debt and US$7bn of ABS debt through July 29, it expects to issue around US$7bn-$10bn of unsecured debt over the course of 2020 and US$11bn-$14bn of ABS. Last year it issued US$17bn of unsecured corporate debt, versus US$14bn of ABS. The issuer has US$73bn of term debt outstanding including bank borrowings. Bookrunners on Wednesday's Ford bond offering were Citigroup, Credit Agricole, Societe Generale and SMBC.

BON

2 min read

Americas

David Bell

Bonds

Ford Motor Credit raises unsecured debt after earnings

BON

2 min read

Americas

David Bell

Bonds

Liberty Global Swiss unit's bonds rally on M&A news

Bonds issued by Liberty Global's Swiss unit UPC were up on Wednesday after the telecoms conglomerate announced plans for the takeover of Zurich-based Sunrise Communications in a surprise US$7.4bn deal. UPC's 3.875% Jun 2029s were up more than 2.5 points at 99.10, according to Tradeweb data. The bonds were trading cheap beforehand, said one investor. "UPC was the widest Double B euro telco yesterday, which seemed to be due to a lack of strategic direction," said the investor, citing the failed tie-up with Sunrise last year. "UPC tried to sell themselves to Sunrise but the shareholders voted it down after baulking at the multiple. There was also some concern of a joint venture between Salt and Sunrise to roll out broadband," he said. Now UPC has announced the acquisition of Sunrise, bond investors are happier for a number of reasons. "One, it gives the bondholders clarity that Liberty Global wants to invest in the asset." But second, pro forma leverage for the transaction is 5x, which is the same as Virgin Media (VMED), according to the investor's calculations. However, VMED has vendor notes which are not included in its debt calculations - and which UPC doesn't have to the same extent. "UPC will have less leverage than VMED and despite the 2.5 point rally the bonds still trade 50bp wide of VMED [in spread terms] - which shows how cheap they were on a relative value basis as of yesterday," said the investor. The merger will also reduce competition in the Swiss market, which is good for UPC's profits, he said. STRATEGIC REVERSAL The deal marks a strategic reversal by US company Liberty Global, which had been divesting European assets. UPC on Wednesday announced a US$3.58bn-equivalent jumbo loan in US dollars and euros to back the purchase of Sunrise. The company opted for the term loan B route instead of the high-yield market in order to gain a greater degree of flexibility, said a banker familiar with the deal. "The TLB market is in good health, the instrument provides flexibility in coming to market before completion of the tender offer, as well as an ability to bring the deal in the middle of August," said the banker. However, there isn't much of a pricing differential between high-yield and the loan market. "Both markets are pretty healthy so I think pricing conditions are probably fairly similar for a good quality asset like this one," said the banker. Liberty Global, set up by cable pioneer John Malone, is making an all-cash tender offer for Sunrise at SFr110 per share. The deal is subject to regulatory approval. The idea behind the Sunrise merger was to "build on the existing UPC story with Switzerland representing an attractive telecoms market having stable and high ARPUs (average revenue per user)," said the banker. Liberty wanted to create a stronger competitor to Swisscom, as it has done in other markets through subsidiaries such as Ziggo, Telenet and VMED, said the banker. Liberty said the combined businesses will have SFr3.1bn in revenue, 2.1m mobile post-paid subscribers, 1.2m broadband subscribers, and 1.3m TV subscribers - around 30% market share in each segment. The takeover of Sunrise continues a flurry of activity for Liberty that includes the £24bn tie-up between its Virgin Media business and Telefonica's O2 and the taking private of Spain's Masmovil by private equity investors. Liberty Global Chief Executive Mike Fries told reporters on Wednesday that "the industrial logic of the deal was undeniable" in a market that "requires rationalisation", and that Liberty Global wanted to use its strong balance sheet. "We are sitting on US$10bn of liquidity right now,” he said. "We felt this is a great market and a great opportunity to put capital to work." The company had been divesting European assets based on a view that the sector is expensive due to its high capital costs and low growth prospects. Fries said Liberty Global had pulled out of Austria and Germany because its operations there lacked scale, though it wa

BON

5 min read

EMEA

Eleanor Duncan, Prudence Ho

Bonds

UK MBA prepares for ultra-long sterling benchmark

The UK Municipal Bonds Agency has moved towards a return to the sterling market to raise funds on behalf of Lancashire County Council, five months after making its debut. Investor calls commencing on Wednesday August 12 will be arranged by Bank of America, Barclays and HSBC with a NetRoadshow presentation also made available. The UK MBA is looking to offer a fixed-rate ultra-long-dated sterling benchmark that is senior unsecured debt guaranteed by Lancashire County Council, rated Aa3 (negative) by Moody’s. Due to the nature of the deal, there is some discussion as to whether it falls into the SSA or corporate category. "In terms of positioning, it's more like an SSA credit," said a banker on the deal. "But in terms of who can look at it, it's not only rates investors. In theory, there will be a decent pick-up over Gilts, so credit investors will also likely be having a look." The agency, which was set up in 2014 as a vehicle for councils to come together to sell bonds in benchmark size through a system of cross guarantees, has seen little market activity, with its only other issuance a £350m five-year deal in March of this year. Similar to the proposed trade, that transaction was guaranteed by Lancashire County Council alone and required the UK MBA to revise its framework agreement, which previously had no provision for standalone guarantees. The debut deal came after the UK government increased the cost of borrowing from the Public Works Loan Board last year, hiking rates by 100bp in a bid to rein in the explosion in borrowing from councils in recent years. The UK MBA, set up by 56 local authorities, was created to help wean local authorities off the PWLB and shift towards more disciplined borrowing. Its aim is to "diversify the funding sources available to local authorities, reduce reliance on the PWLB and enable investors to more easily fund UK local authority infrastructure". Lancashire, as one of the most indebted councils in the UK, with almost £1.2bn of debt, according to the latest figures released in March, remains the only council to have ventured down this path despite a long history of indicated deals from others that have ultimately failed to transpire. "Not only do they need the money, but they are more prepared and able to mobilise faster than other councils in order to take advantage of the MBA and diversify their funding source away from HMT," said the banker. "They are just more advanced than other councils, but others will come at a later stage."

BON

3 min read

EMEA

David Cheetham

Bonds

Liberty Global Swiss unit's bonds rally on M&A news

BON

5 min read

EMEA

Eleanor Duncan, Prudence Ho

People & Markets

ABN AMRO shrinks investment bank, quits trade, commodity finance

ABN AMRO is quitting trade and commodity finance activities and will wind down corporate banking in the United States, Asia, Australia and Brazil under a plan to shrink its investment bank. About 800 jobs will go. The Dutch bank said on Wednesday the focus of its slimmed-down corporate and institutional banking (CIB) will be on clients in Northwestern Europe and clearing. It is setting up a non-core unit for CIB, which will include about €14bn of risk-weighted assets, or 35% of CIB's total. The non-core arm will have about €18bn in client loans, or 45% of CIB. It said about 800 employees are currently dedicated to non-core activities and the wind-down of the businesses is expected to take three to four years and be capital accretive. "We have concluded that to be successful, CIB’s activities need more focus and scale," said CEO Robert Swaak. "Furthermore, CIB will need to reduce risk to adhere to a moderate risk profile and will align to the bank’s overall strategy and financial and non-financial ambitions." ABN said in natural resources and transportation and logistics it will focus on European clients only. Its only non-European corporate banking activities will be clearing, where the bank said it had taken several de-risking measures in recent months after incurring a large loss. Stricter lending criteria and credit limits have been set based on clients' individual credit rating, available collateral and geography of origin. ABN has already cut its markets activities in recent years, including equities, rates, credit, currencies, equity capital markets and debt capital markets. The markets business largely serves clients in private banking, commercial banking, CIB and treasury. Several other European banks are reported to be rethinking their trade and commodity finance operations, including Natixis and BNP Paribas, after losses in energy trading. ABN said about 80% of the CIB non-core portfolio will mature by 2023 through natural run-off. It said it will consider options to accelerate the wind-down. Its loan impairment allowance for the non-core portfolio is €1.4bn and it expects additional impairments. It also expects to book a provision of about €200m for staff-related costs. GOING DUTCH ABN has made several attempts to increase profitability and reduce risks in CIB after losses in the energy sector, but it said the attempts had been insufficient. Swaak said the core Amsterdam-based CIB business will target markets where it has scale and can be sufficiently profitable and try to build on its profitable domestic franchise and footprint with links with the Netherlands. That is likely to focus on mid-sized clients in sectors such as financial institutions, shipping, technology, media and telecoms, and real estate, and on products including lending, payments and asset-based finance, as well as the markets products. It is sticking with clearing because it has strong roots in the Netherlands, offers diversification of income and is countercyclical, the bank said. ABN said it wants the core CIB business to produce a return on equity of 10% in the long term. The core business' pro forma RoE was 9% in 2019 but was negative 12% in the first half of this year. CIB made an operating loss of €894m in the first half - including a €209m loss for what will remain as core CIB - after an impairment charge of €1.4bn. In 2019, CIB made a profit of €291m - including €280m in the core business - on revenues of €1.9bn. CIB's impairments dragged ABN to an overall net loss of €5m for the second quarter. ABN was bailed out by the Dutch government in 2008 and was reprivatised in a 2015 initial public offering. The Dutch state still owns a 56% stake. Its shares jumped 8% to €8.74 on Wednesday after the review and Q2 results.

P&M

4 min read

EMEA

Steve Slater

Bonds

UK MBA prepares for ultra-long sterling benchmark

BON

3 min read

EMEA

David Cheetham

People & Markets

CBA resumes dividend payments

Commonwealth Bank of Australia said that it would pay out a final dividend even as its annual cash profit fell 11% to A$7.3bn (US$5.2bn), primarily on the back of an increase in bad loan provisions due to the Covid-19 pandemic. CBA announced today a final dividend of A$0.98 per share, down from A$2.31 last year. The dividend plans of Australia's number one lender are closely watched, coming only two weeks after the country's prudential regulator gave the green light for banks to resume distributions to shareholders. CBA operates on a different financial calendar to the other major banks in Australia. The Australian Prudential Regulation Authority was the first major regulator globally to lift restrictions on capital distributions introduced in response to Covid-19, although it said that banks would need to carry out regular stress tests and that they should retain at least half their earnings. CBA said today that cash profit for the full year to June 30 came in at A$7.3bn against A$8.22bn last year. This was primarily as a result of an increase in loan impairment expenses by A$1.32bn year on year to A$2.52bn. The bank's total operating income edged up 1% to A$23.76bn as growth in home lending and deposits offset a 2bp slide in the bank's net interest margin to 2.07%, primarily due to lower interest rates. Institutional banking and markets recorded a 41% drop in cash profit to A$655m, in part due to an 8% decline in net interest income, which was partly offset by a strong performance in markets on increased volatility. International financial services, New Zealand, and business and private banking also saw their cash profit decline by 48%, 23% and 9% respectively, while cash profit for retail banking services edged up 2%. The bank's common equity Tier 1 ratio came in at 11.6%, up 90bp year on year, primarily due to the lower dividend payout.

P&M

2 min read

Asia

Thomas Blott

IFR Events

IFR hosts a comprehensive programme of conferences, seminars and roundtables throughout the year, providing authoritative insight into the trends and outlooks for specific regions and asset classes.

View Events Calendar

IFR Digital Edition

Access a digital replica of IFR's print magazine, updated each Friday. Plus regular Special Reports and Roundtables, covering industry themes and trends.

Latest Digital Edition

Bellwether

FICC of pique

CHRISTIAN SEWING SIGNED off for the summer with an upbeat message for staff after Deutsche Bank posted a decent set of second-quarter earnings. Sewing said the results served as a vindication of his strategy. But a dive into the numbers tells a different story. Revenues at the corporate bank, the cornerstone of Sewing’s turnaround, rose 3%, but the knockout performance came from the investment bank, where revenues leapt 52% on the back of that old Deutsche powerhouse, FICC – the lightning rod for so much criticism and a symbol of the free-wheeling image that Sewing is so desperate to shed. Sewing should be applauded for his turnaround efforts, but don’t take credit for credit. Sewing also pointed to the results of the bank’s “people survey” as further evidence he is steering the ship in the right direction. “We have seen the highest commitment score since 2012, and an all-time high for enablement,” he said. And if that’s not enough, Sewing said the survey showed staff "also support our strategy more and you are happier with your managers". Given that very few will have seen their manager since March, you wouldn’t expect anything less. ROYAL BANK OF CANADA has become the latest bank to allow its staff to work from home until 2021. But if their London-based capital markets staff are stuck for something to do, they could always follow the lead of their US colleagues, who have set up RBCCM US Kids Club. It’s a virtual summer camp at which staff volunteer to entertain each other’s children via Webex, with the Kids Club offering “story time” and “weekly sing-alongs”. Could this also be a chance to raise some money for good causes? Bellwether is surely not alone in being willing to pay good money to watch Darrell Uden and Josh Critchley belting out some tunes from Frozen to bemused toddlers. GOLDMAN SACHS HAS managed to maintain its record for paying out billions in dollars in fines without accepting guilt or liability – but keeping a straight face – after reaching a US$3.9bn settlement with the Malaysian government over the bank’s role in the 1MBD corruption scandal. While some bank bosses might count their lucky stars and head for the hills, Goldman’s boss David Solomon headed for the Hamptons, where he performed a live set at an open air gig as his alter ago DJ D-Sol. But his fun was cut short when it emerged that New York’s health authorities are investigating the concert for rampant violations of social-distancing rules. Suffice to say, Solomon is in hot water, with New York Governor Andrew Cuomo having a pop on Twitter. A spokesperson for Solomon said: “The vast majority of the audience appeared to follow the rules, but he’s troubled that some violated them and put themselves and others at risk." Which was pretty much the line Goldman used on 1MBD. CONTINUING THE THEME of law-related levity, HSBC has appointed Egmont Schaefer and Pedro Urresti as co-heads of FIG corporate banking for Europe, according to a memo. Apparently, all of Pedro’s direct reports are “under Urresti”.

IFR 2344 - 01 Aug - 07 Aug

More Bellwether

IFR Events

IFR hosts a comprehensive programme of conferences, seminars and roundtables throughout the year, providing authoritative insight into the trends and outlooks for specific regions and asset classes.

View Events Calendar

IFR Digital Edition

Access a digital replica of IFR's print magazine, updated each Friday. Plus regular Special Reports and Roundtables, covering industry themes and trends.

Latest Digital Edition

Bellwether

FICC of pique

IFR 2344 - 01 Aug - 07 Aug

More Bellwether

Welcome to IFR

Asset Class

Region

Display

IFR Events

IFR Digital Edition

IFR Events

IFR Digital Edition

Our Privacy Statement & Cookie Policy