Stellantis steers around tariff potholes
Stellantis took advantage of a respite in market volatility on Wednesday to land an oversubscribed US$2.25bn bond offering amid concerns that US president Donald Trump's tariffs will disrupt carmakers reliant on supply chains crossing into the US from Canada and Mexico.
The bond deal, Stellantis' first trade in US dollars since September 2022, came at a difficult time. Credit spreads for automotive issuers have widened – drawing the brunt of the selloff in high-grade corporate credit this year – due to worries over escalating import duties.
"Stellantis hasn't been in the US dollar market for a while," said a lead banker. "These are the types of issuers who are looking at markets and asking themselves, 'Is this going to get better or is it going to get worse? If I don't have a strong view of it getting better, why don't we do the deal now?'."
Despite the uncertainty, the global automaker recorded US$13bn of demand for its deal. The execution provided ample evidence that the market remains open to carmakers as long as they are willing to provide ample concessions.
"The question is, can you put in enough basis points to get a deal across the line. By and large, the answer is still yes," said the banker.
Stellantis' transaction also benefited from the improved tone in US equities following lower-than-expected February inflation data released on Wednesday, creating an opening for 10 other investment-grade borrowers that day.
Generous spreads
Through its US financing subsidiary, the Netherlands-headquartered automaker issued US$500m three-year, US$750m five-year and US$1bn 10-year senior unsecured notes. Bookrunners priced the fixed-rate tranches at Treasuries plus 140bp, 170bp and 215bp, respectively, coming in by 25bp–35bp from initial price thoughts. Final pricing represented 15bp–23bp of concessions, according to IFR calculations.
Stellantis offered alluring spreads to get the fundraising done, partly as a function of how its US dollar bonds have widened more than its euro debt, said a second lead banker before the deal launched.
Indeed, the bonds came about 50bp back of euros after adjusting for the cross-currency swap, according to a third lead banker. “The view was that euros will always be there and dollars keep widening, so take it now," the third banker said.
Those generous spreads were attractive, said a buyside source, noting that the issue was "coming cheap" to its Baa1/BBB rating and drew interest from crossover investors. By comparison, the average Triple B US corporate bond traded on Wednesday at a spread of 117bp over, according to ICE BofA Index data.
Besides the broader tariff worries that have hit the car industry, Stellantis' spreads also reflect the company's own troubles. S&P on March 6 cut its rating on the company by one notch to BBB after it reported a full-year adjusted operating income margin of 5.5%. S&P also reduced its Ebitda margin estimate to about 5.8% for 2024, below its full-year forecast in October of 6.6%.
"Stellantis is the one that is struggling the most out of the three," said the buyside source, referring to the major carmakers with US operations: Ford Motor, General Motors and Stellantis, which owns European brands Fiat, Citroen and Peugeot, and US manufacturers Chrysler, Dodge and Jeep.
Still, there are signs that the company can navigate the uncertain policy backdrop. Stellantis received a one-month exemption to tariffs on Canadian and Mexican imports because the company complies with the United States-Mexico-Canada Agreement on trade.
Active leads for the 144A/Reg S offering were Credit Agricole, Citigroup, BNP Paribas, JP Morgan, Morgan Stanley, Natixis, RBC Capital Markets and SMBC.
Additional reporting by Sudip Roy