Investment-Grade Corporate Bond
Right deal, right time: In a year characterised by extreme volatility and short windows of opportunity, peripheral corporates saw unprecedented challenges in accessing the market. For showing how to win over investors with a perfectly timed issue, while brushing off the darkening clouds hanging over southern Europe, Enel’s dual-tranche €1.75bn bond is IFR’s Investment-Grade Corporate Bond of the Year.
Enel’s dual-tranche €1bn six-year and €750m 10-year bonds caught many an eye in the market. The issuer ended its long absence from the international bond market with spectacular results amid extreme intraday volatility in July.
Not only that, but the company also bolstered its curve, decreasing its average cost of funding in the process, and reopened the primary market after a week-long shutdown caused by renewed fears about Greece’s solvency.
“The most important element of this deal was its timing,” said Brendon Moran, co-head of debt capital markets for corporates at Societe Generale. The bank was one of four bookrunners on the bond along with Banca IMI, BNP Paribas and UniCredit.
“There is always a moment when things could get worse, so sooner rather than later proved to be the best option,” he added.
The issuer could not have envisaged just how bad things were about to get in the wider market, but the decision to push ahead with the transaction – even despite the headwinds – nonetheless proved vital.
Brave timing
Moody’s downgrade of Portugal to “junk” came shortly after pricing. The move triggered a renewed risk-off environment, which effectively shut out peripheral issuers for a number of weeks. When the window did reopen, funding costs had risen notably.
Indeed, the timing was brave. Enel, rated A2/A–/A–, competed against €900m worth of supply from rival Italian issuer Fiat, and therefore risked being crowded out. Although the carmaker is rated sub-investment grade, it has a substantial following from high-grade investors and was offering a very generous spread.
With the stakes running so high, it was imperative for Enel to build solid momentum for its own deal from the start.
It did this by offering an attractive new issue premium to lock in liquidity, and wasted no time in conducting a limited sounding out of a few key accounts to gauge appetite. The response was very encouraging, with investors proving receptive to Enel’s solid name recognition and high credit quality.
The deal was subsequently announced at guidance of mid-swaps plus 135bp area on the shorter-dated tranche and plus 170bp area on the 10-year, indicating a new issue premium of around 35bp and 38bp respectively.
Pricing inside
Stunning demand allowed Enel to price well inside those levels at mid-swaps plus 128bp and plus 167bp on the six-year and 10-year respectively. The combined book closed at €7.5bn from over 650 accounts in less than three hours, skewed in favour of the six-year tranche at €4.8bn.
The quality of the order book was one of the highest of the year, dominated by buy-and-hold investors which accounted for 88% and 93% of the six-year and 10-year books respectively.
“We had the impression that the markets could turn negatively quite soon, and we successfully managed to catch a very short window of stability,” said Alessandro Canta, the group head of finance at Enel.
“The outcome surpassed our expectations and all in all it was a very successful transaction for Enel.”
The overwhelming success of the deal paved the way for the company to return to the market in arguably even tougher times in October 2011, with a dual-tranche €2.25bn long three and seven-year transaction which attracted a remarkable €12bn of demand.
