JP Morgan slips in global equity

There’s a growing feeling around the markets that Antony Jenkins is about to cave in to the undoubted pressure to drastically scale back (or even close) Barclays’ investment banking operations.That would be a mistake. The relatively new Barclays CEO needs to remember – even cherish – what he inherited.The legacy of Bob Diamond must feel like a mixed one. But Jenkins shouldn’t forget that the controversial American left Barclays with the chance of becoming one of the world’s great financial institutions – great in the sense of being an institution that bestrides the financial markets as a world leader comfortable operating in all regions and dealing in all products.It is reasonably certain that the shakedown in banking, which started in 2008–09 but has really gathered momentum in recent months, will leave only a handful of banks able to claim that they are truly global.Natural advantages (and an abundance of talent) will mean that three of them will be the big US universal banks: JP Morgan, Citigroup and Bank of America Merrill Lynch. Goldman Sachs will be another, albeit as a monoline investment bank lacking a corporate banking product set. But after that only Deutsche Bank and Barclays have a chance to play in that league. Others, such as HSBC, BNP Paribas and Credit Suisse, will remain world class in selected areas but they will be playing a different game.That would be quite an opportunity for Jenkins to throw away.And it’s not just an opportunity to feel important. There is real money to be made – at least there will be.It is true that the leverage-fuelled go-go years of the pre-financial crisis era are not going to return, but M&A, equities and ECM activity will revive when Western economies eventually pick up, even if the QE and LTRO-fuelled debt boom is likely to slow.More to the point, other banks without critical mass are – quite rightly – beginning to fold their hands when it comes to certain markets: witness the reduced ambitions of RBS, Nomura and UBS, to name just a few. So the frenzied competitive pressures are likely to ease.This is not to suggest that Jenkins should be above a bit of judicious pruning. There are areas that are ripe for trimming, and a general bearing-down on comp costs in the investment bank is obviously sensible (and unlikely to lead to many bankers heading for pastures new). But anything much more drastic, even the abandonment of its global ECM ambitions – perhaps the most likely of the mooted cuts – would be a mistake.As any good poker player knows, it is foolish to keep betting just because you’ve already put a fortune in the pot. But it is even more foolish to fold a good hand just before you’re likely to win big.Now is the time for Jenkins to keep faith with the bank that Bob built.Changing the guardPutting a bond banker in charge of loans is an unusual move for any institution – let alone for a bank with a far longer history as a lender than as a bond underwriter.With its predecessor firms dating back more than a century, Standard Chartered has built a reputation as a powerhouse lender that understands emerging-markets risk. Bonds – at least the kind that require the broadest possible distribution – are a relatively new addition, part of a strategic shift that began in earnest only after Lenny Feder took over the financial markets platform in 2007.Since then, StanChart has added countless former investment bankers to its ranks, including ex-UBS syndicate and hedge fund sales banker Cristian Jonsson, who is taking over from Philip Cracknell as head of loan syndications.Jonsson doubtless brings some useful skills to the loans platform, with his institutional investor contacts and distribution focus, especially with risk weightings under scrutiny and tougher capital rules in mind.His appointment, however, shows that the balance of power in the bank is shifting. The ex-Lehman Brothers and UBS investment bankers who joined with Jonsson in the capital markets build-out in 2008 and 2009 wer

After three days of marketing, small market TV station owner Nexstar Broadcasting broadened its shareholder base with the all-secondary sale of a chunky 8m shares by media-focused private-equity firm ABRY Partners at US$9.25.The pricing was a steep 17% discount to the pre-filing level of US$11.16. Having owned the shares for so long, perhaps ABRY was not as price-sensitive as some of its private-equity peers.ABRY has held the investment since 1996, having owned a company that was taken over with Nexstar before its US$140m IPO in 2003. The shares offloaded represent more than a quarter of outstanding and about half of ABRY’s holding.The heavily marketed effort was, therefore, understandable. Credit Suisse, Wells Fargo and UBS led the offering.In July, Nexstar completed the acquisition of 12 TV stations in eight markets, as well as other assets, for US$285.5m in cash (the deal closes on December 1) and followed that up with another US$52m of station acquisitions earlier this month, all funded with new credit facilities.Looking at its balance sheet, Nexstar may want to revisit the market in the near future, though chief executive Perry Sook noted in early November that the company had grown since its IPO without materially altering its 30.7m-share count.CFO Tom Carter indicated that Nexstar would “continue to take actions to reduce leverage and reformulate the capital structure of the company”. Total debt stands at a hefty US$615.2m, though curiously it has not stopped the company declaring a dividend early last week that participants in the offering will enjoy.

Milan airports operator SEA cancelled its €187m–€251.5m IPO late on Friday night, after a day of bad blood and unhelpful headlines. The company said that the deal had faltered on lack of demand, although it had not been helped by an ugly spat between the company and major shareholder F2i, which had required an amendment to the prospectus and a visit to the courts.The infrastructure fund bought 29.75% of SEA in an auction from the City of Milan for €385m in December 2011 and was unhappy with the valuation implied by the IPO.Banca IMI, Mediobanca, Morgan Stanley and UniCredit were joint global co-ordinators, with Deutsche Bank and BNP Paribas as joint bookrunners.

A number of issuers rushed into the market ahead of fiscal cliff uncertainty last week in what seemed to be an acceleration of 2013 funding plans. The week ended with US$37bn issued, the second largest volume week of the year.One banker said investors were showing less willingness to add risk in block-size ahead of the year end but select issuers are still getting good attention.Walt Disney Co (A2/A/A) raised US$3bn from a four-parter via Citigroup and JP Morgan, with many of the tranches figuring in the low-coupon record books. A US$500m three-year priced at plus 35bp (0.45% coupon at 99.255, yield 0.701%); a US$1bn five-year at plus 60bp (1.1% coupon at 99.289, yield 1.247%); a US$1bn 10-year at plus 80bp (2.35% coupon at 99.232, yield 2.437%); and a US$500m 30-year at plus 95bp (3.70% coupon at 99.282, yield 3.74%).The three-year ties the record for all-time lowest three-year coupon – matching the Texas Instruments and Unilever deals done back in late July. The five-year ties for the fifth lowest and the 10-year made it to the top 20 lowest tables. The 30-year also made to the lowest coupon table. The concessions were about flat to 10bp. Book size was US$11bn.American Electric Power Co (Baa2/BBB–/BBB), for example, found a solid reception for its US$850m two-part via Citigroup, Goldman Sachs, JP Morgan (active) and BNP Paribas, Credit Agricole, RBS (passive) joint books. The holding company has not been in the market since 2003.Initial thoughts were 120bp area/145bp area on the five- and 10-year respectively.The US$550m five-year priced at Treasuries plus 105bp (1.65% coupon at 99.884, yield 1.674%); and US$300m 10-year at plus 135bp (2.95% coupon at 99.801, yield 2.973%). Concession was flat to 5bp on the 10-year. Book size was US$3bn.McKesson Corp (Baa2/A–/A–) also did well with its US$900m two part via Bank of America Merrill Lynch and JP Morgan. Initial thoughts were plus 85bp area on the three-year and plus 85bp area on the 10-year. Official guidance came in at 70bp area and 115bp area respectively. The US$500m three-year came at plus 65bp (0.95% coupon at 99.897, yield 0.985%); and US$400m 10-year at plus 110bp (2.70% coupon at 99.886, yield 2.713%). Book size was US$8.3bn.Swiss Re Treasury (US) Corp (A1/AA–), guaranteed by Swiss Reinsurance Co, took out US$750m from a two-parter via BofA Merrill, Citigroup, Morgan Stanley and RBC. The US$250m 10-year priced at plus 130bp (2.875% coupon at 99.595, yield 2.922%); while the US$500m 30-year came at plus 155bp (4.25% at 98.449, yield 4.343%).This was Swiss Re treasury’s debut senior deal in dollars and it seemed to be paying up a bit as a European issuer doing a 144a transaction and more generally because it has a more complicated company structure than its domestic peers. Investors were all over the deal with book size on the 10-year coming in at a whopping US$4bn and the 30-year coming in with a US$3bn book.Dun & Bradstreet Corp (BBB+/BBB+), meanwhile, raised US$750m from a two-parter that featured coupon step-ups via Barclays and JP Morgan. Coupon steps up by 25bp per notch/per agency downgrade to 2% maximum, starting at BB+/BB+.Announced as US$500m, initial thoughts were plus 275bp area on the five-year and plus 300bp area on the 10-year. The US$450m five-year came at plus 262.5bp (3.25% coupon at 99.991, yield 3.252%); the US$300m 10-year came at plus 287.5bp (4.375% coupon at 99.027, yield 4.497%). Book size was US$2.1bn.

More US companies are lining up to issue bonds before the year-end to pay special dividends, after seeing Costco, Murphy Oil and Carnival Corp hit bond investors for US$5.5bn to return funds to shareholders before Congress possibly hikes dividend taxes next year as part of avoiding the fiscal cliff.Costco Wholesale (A1/A+), jumped into the market last Wednesday for the first time since 2007 to raise US$3.5bn of three, five and seven-year notes through Bank of America Merrill Lynch and JP Morgan, specifically to fund a special US$3.027bn dividend to shareholders.It followed Tuesday’s US$1.5bn bond issue by Triple B rated Murphy Oil, US$500m of which will be used to pay a special dividend.Carnival Corp (A3/BBB+), issued US$500m of five-year senior notes through Goldman Sachs, JP Morgan, Royal Bank of Scotland and UBS, proceeds of which include meeting a US$297m dividend.According syndicate sources, more special dividend deals will hit the screens in the investment grade and high-yield bond markets in coming weeks, as companies make a mad dash to the bond market to fund payments to shareholders.“With tax rates on dividends set to double for many earners in 2013, several companies are trying to get special dividends in under the wire,” Erin Lyons, credit strategist at Citigroup, told clients.Companies with insider holdings were most likely to announce special dividends, such as Las Vegas Sands and Dillard’s Inc, both of which have pledged to pay their shareholders special dividends totalling US$2.264bn and US$216m respectively.Companies with large levels of cash on hand and low leverage are also likely candidates, according to Lyons.Possible candidatesUsing those criteria, Lyons has singled out more than 15 possible candidates for special dividend announcements before the year-end, including Microsoft, Oracle, Walgreen, Wal-Mart Stores and Eli Lilly.The proliferation of companies with insider holdings, low leverage and wads of cash does not necessarily mean there is about to be a mad rush to market before Christmas, however.“While dividends need to be paid in 2012, a credit could use cash on hand and defer new issuance until after the December 31 deadline for dividend payments,” wrote Lyons.“With tax rates on dividends set to double for many earners in 2013, several companies are trying to get special dividends in under the wire”With investment grade US corporate leverage levels generally at historic lows, investors in high grade bonds are not expected to find the shareholder friendly deals too much of a concern, for the moment. That at least seemed to be the experience for Costco and Carnival.Costco’s deal attracted US$7bn of orders and pricing was 5bp tighter than initial thoughts on its US$1.2bn of 0.65% 2015s at 35bp over Treasuries, while its US$1.1bn of 1.125% 2017s at 50bp and its US$1.2bn of 1.7% 2019s at 70bp came at the tight end of guidance.At those levels, the seven-year coupon ties for second-lowest on record for that part of the curve.All that and with barely any new issue concession versus comparables.Carnival Corp (A3/BBB+) priced its US$500m 1.87% five-year maturing in 2017 at 130bp, more than 30bp inside of initial thoughts.The deal, led by GS, JPM, RBS and UBS then tightened in another 15bp in the aftermarket.Murphy Oil’s experience, however, demonstrated that lower rated credits with a more complicated story might need to offer greater compensation to get shareholder-friendly bond deals done.The Baa3/BBB/BBB– rated deal sported rarely-seen coupon steps of 25bp per notch downgrade by Moody’s and S&P, capped at 2%.It priced US$550m 2.5%  2017s at 185bp; US$600m 3.7% 2022s at 210bp and US$350m 5.125% 2042s at 235bp.Pricing on the 10-year was about 5bp back of its outstanding 4% 2022s and the step up coupons were thought to be worth as much as 25bp in compensation.

The US ABS primary market priced two new offerings last week and only scattered new issues are expected throughout the rest of 2012. One transaction is currently pre-marketing with pricing scheduled for some time this week.Deutsche Bank (structuring lead) and Wells Fargo priced the US$205m 144a American Credit Acceptance Receivables Trust (ACAR) 2012-3. The offering was backed by sub-prime auto loan receivables and it was American Credit Acceptance’s fourth term ABS, varying from previous issues.“The most significant structural change from the last transaction is the inclusion of a pre-funding period. Also, the estimated excess spread has been slightly reduced, and the triggers have changed a little,” said a report from sole rating agency S&P.The 2012-3 series has a pre-funding period of three months that will end on February 15 2013. On the closing date, about US$34.1m of the proceeds from the sale of the notes by the issuer will be deposited in the pre-funding account.Credit enhancement for the offering is the same as the 2012-2 series except that the estimated annual excess spread decreased to 15.68% from 16.93%.The 1.10-year tranche was rated A+ and priced 10bp inside of talk at EDSF plus 130bp. The 2.60-year Single A slice printed at interpolated swaps plus 185bp after being talked 15bp wider at 200bp area. The Triple B and Double B notes offered tenors of 2.77 years and 2.78 years respectively, and were priced at interpolated swaps plus 235bp and 460bp.The US$211.4m ACAR 2012-2 series priced in late July by the same two underwriters and was also solely rated by S&P. Spreads have tightened significantly since then. The 2012-2 1.01-year Single A tranche priced at EDSF plus 150bp while the 2.42-year Single A slice printed at interpolated swaps plus 230bp. The 2.61 and 2.63-year Triple B and Double B rated notes were stamped at interpolated swaps plus 360bp and 550bp.Citigroup (structuring lead), BMO, Goldman Sachs and RBC also priced the US$1.012bn Nelnet (NSLT) 2012-6 student loan transaction.The 7.11-year Triple A slice came at one-month Libor plus 65bp.Looking ahead to this week and subject to market conditions, Barclays (structuring lead), Bank of America Merrill Lynch and SG will be joint-leads on the inaugural auto dealer floorplan ABS transaction for Mercedes-Benz, the US$750m MBMOT 2012-A & B.The transaction will be offered in a 144a/Reg S format and consist of a 2.93-year fixed-rate note (2012-A) and a 1.93-year floating-rate slice (2012-B). The tranches will be sized to investor demand. Moody’s and Fitch will assign the ratings.Mercedes-Benz has already tapped the market this year with a US$1.546bn prime retail offering, Mercedes-Benz Auto Receivables Trust (MBART) 2012-1 and a US$1.43bn lease transaction, Mercedes-Benz Auto Lease Trust (MBALT) 2012-A.Also last week, Moody’s assigned a provisional rating of Baa2 (sf) to a drug royalty ABS to be issued by DRI Capital Inc.The Series 2012-1, issued by a trust called Drug Royalty II LP1, is underpinned by 18 drug royalty streams generated from the global sales of 11 drugs.The CMBS market remains active. Wells Fargo and RBS, for instance, announced the US$1.3bn WFRBS 2012-C10 conduit trade. It is collateralised by 85 fixed-rate commercial mortgage loans secured on 122 properties.The loans have principal balances ranging from US$1.3m to US$125m – this loan is secured by Republic Plaza (9.6%), a 1.3m square foot office building located in Denver, Colorado.Bank of America Merrill Lynch also announced the US$300m BAMLL 2012-PARK, a single-borrower transaction.The bond is linked to a 1.2m square foot, 48-storey office tower in Manhattan, 101 Park Avenue. The loan sponsor is Peter S Kalikow.The 10-year piece received Triple A ratings from Kroll, Morningstar and S&P.JP Morgan announced the US$175m 144a/Reg S JPMCC 2012-PHH, backed by a fee interest in the 1,639 guest room Palmer House Hilton in Chicago.The mortgage loan is interest-only with an initial term of

Monthly volumes breached the US$120bn mark in November at US$125.64bn, making it only the second month ever to see issuance break that level, showing that there is no let-up in the momentum seen in US high-grade markets all year.Almost all of the chunkiest deals done last week priced tighter than guidance and the coupons paid featured among the lowest ever, showing that even as we are nearing the end of a hectic year for high-grade issuance, issuers are still able to sell bonds at record low funding costs.The highlight of the week was a US$3bn three-part trade by Amazon.com (Baa1/AA–) via Goldman Sachs and Morgan Stanley. The coupons set on the three-year and five-year notes made it to the record table of the lowest coupons while the 10-year note just missed that table.Official guidance on the three-year, five-year and 10-year bonds was 5bp–10bp tighter than initial price talk at the Treasuries plus 40bp area, plus 65bp area and plus 95bp area respectively. A US$750m three-year note was priced at plus 38bp (0.65% coupon at 99.728, yield 0.742%); a US$1bn five-year note at plus 63bp (1.20% coupon at 99.513, yield 1.301%); and a US$1.25bn 10-year note at plus 93bp (2.50% coupon at 99.116, yield 2.601%).The eBay (A2/A) 2.60% July 2022s are quoted at 85bp–80bp (US$100.782; G spread plus 96bp) so the Amazon 10-year tranche managed to price a touch inside that. Overall an exact concession seemed difficult to calculate for this debut trade. Book size was US$11.5bn.CVS Caremark Corporation (Baa2/BBB+) helped the week’s volumes with a US$1.25bn 10-year issue via Barclays and Wells Fargo (active) and Bank of America Merrill Lynch, BNY Mellon and JP Morgan (passive). Official guidance emerged at the plus 110bp area and it was finally priced at that level (2.75% coupon at 99.861, yield 2.766%). The coupon tied for the third lowest Triple B 10-year deal on record.The outstanding CVS 4.125% May 2021s were quoted at plus 70bp–65bp (US$113.10; G spread plus 104bp), so the concession was 6bp. Book size was US$2.4bn.Health Care REIT (Baa2/BBB–/BBB) ended up pricing a US$1.2bn three-part issue via BofA Merrill, Deutsche Bank and UBS (active) and Citigroup and Credit Agricole (passive) joint books. Proceeds were to repay certain debt related to its Sunrise acquisition.The company priced a US$450m five-year tranche at plus 170bp (2.25% coupon at 99.501, yield 2.35%); a US$500m 10-year piece at plus 215bp (3.75% coupon at 99.631, yield 3.792%); and a US$250m 30-year portion at plus 240bp (5.125% coupon at 99.076, yield 5.184%). The new-issue concession was about 5bp across the board and book size was US$3.9bn.Raytheon Co (A3/A–/A–) took US$1.1bn from a 10-year issue at Credit Suisse and JP Morgan (active) and BofA Merrill, Citi and UBS (passive) joint books. The deal priced at plus 90bp (2.50% coupon at 99.691, yield 2.535%).Chevron made a re-entry to the US high-grade arena in style last week after being away from the market since 2009. Chevron Corp (Aa1/AA) priced a US$4bn five-year and 10-year issue via Barclays, JP Morgan and Morgan Stanley (active) and BofA Merrill and Wells Fargo (passive) joint books. Proceeds were to refinance a portion of Chevron’s existing CP borrowings and redeem all of Chevron’s outstanding 3.95% 2014s – a US$2bn trade done in 2009.The five-year piece priced at plus 47bp (1.104% coupon at 100, yield 1.104%), and the 10-year note at plus 72bp (2.355% coupon at 100, yield 2.355%).The five-year and 10-year coupons made the top 20 lowest coupon table. The new-issue concession was considered to be about flat to 10bp while book size was US$10.25bn.Apache Corp (A3/A–/BBB+) also helped the volumes by raising a US$2bn SEC registered two-parter via active books BofA Merrill, Citi, Goldman Sachs and JP Morgan.A US$1.2bn 10-year tranche priced at plus 105bp (2.625% coupon at 99.469, yield 2.685%); and a US$800m 31-year piece came at plus 150bp (4.25% coupon at 99.14, yield 4.30%). Book was US$3.7bn.Shell International Finance (Aa1/

The state enterprise Financing of Infrastructural Projects (Fininpro), which is guaranteed by the sovereign, launched a new US$550m December 2017 note issue through Morgan Stanley at 9% as IFR was going to press.Initial guidance on the 144a/Reg S offering was in the low 9% area. The price represents about a 35bp–40bp new issue premium, according to a source.The note issue is expected to be rated B2 by Moody’s. A banker away from the deal believed the trade was driven by reverse enquiry as there was no roadshow.

Even as ABS issuance slows down, year-end US CLO issuance continues unabated. A deluge of deals hit the market last week, as year to-date issuance approaches US$50bn – outpacing CMBS volume of only US$40bn.November’s CLO tally, including pricings and deals with preliminary ratings, totals more than US$7bn, the highest monthly volume since September 2007 (US$8.5bn), according to Standard & Poor’s.“The core attributes of CLOs offer investors the right thing at the right time,” said Peter Gleysteen, CEO of CIFC. “The product has a cyclical quality, with very predictable, reliable cash distribution streams, which satisfies investors’ need for safety. In addition, they are cheap to other investments on a ratings basis and substantive basis.”CLO issuance has expanded dramatically since the middle of the year. Starting in the third quarter the loan market turned white-hot, providing newly-printed leveraged loan supply, augmented by existing secondary loans, whereas offerings early in the year comprised refinancings of existing deals.At the same time that CLO activity has spiked, there has also been a rapid expansion of Triple A CLO investor base, especially US regional banks. The CLO investing universe is likely to expand further to include insurance companies and even pension funds, thereby squeezing Triple A spreads even tighter.“I would expect that the new entrance of investors into all levels of the capital structure will help to compress CLO liabilities,” Gleysteen said.Analysts are expecting between US$60bn and US$70bn or more of CLO issuance for 2013, depending on the level of external volatility in the market.Flurry of issuanceCIFC Asset Management announced its third CLO of the year last week, the US$515m CIFC Funding 2012-III through sole bookrunner RBS. The deal has a reinvestment period of four years and a non-call period of two years.Also last week, Citigroup priced the US$600m Magnetite VII CLO. The US$360m Triple A piece printed with a coupon of Libor plus 137bp. The collateral manager is Blackrock Financial Management.Morgan Stanley priced the US$625.50m Northwoods Capital IX CLO. The US$375m Triple A slice came at three-month Libor plus 142bp. The collateral manager is Angelo Gordon & Co.JP Morgan also finalised the US$517m Anchorage CLO 2012-1 for Anchorage Capital Group. The US$311.6m Triple A deal was priced at Libor plus 142bp.And Wells Fargo brought the US$325.88m NewStar Commercial Loan Funding 2012-2 to market on Thursday. The CRE CLO contained a Triple A tranche that printed at Libor plus 190bp.S&P assigned ratings to two other transaction: the US$371.2m ING IM CLO 2012-4 and the US$367m Atlas Senior Loan Fund II.

Yapi Kredi became the third Turkish bank to raise Tier 2 capital this year after printing a US$1bn 5.50% 10-year note issue on Thursday, considerably tighter than initial guidance of 5.875%.The lender saw significant demand for the deal, which garnered an order book of about US$7bn, illustrating just how much cash investors still have to deploy.“There’s still a lot of appetite. The market is fully open for the time being,” said Alex von Sponeck, managing director and head of CEEMEA financing origination at Bank of America Merrill Lynch, which led the transaction with Mitsubishi UFJ, Morgan Stanley and UniCredit, Yapi’s parent.One of the striking aspects of the deal was the small but meaningful involvement of Canadian investors, which led the leads to getting a special permit to allow them to sell the bonds into Canada.“It’s the first time I’ve seen significant demand from Canadian investors for Turkish paper,” said von Sponeck.Yapi, which made a senior 2017 note issue earlier this year, went on an extensive three-day roadshow that covered more than 100 accounts across the US, the UK, Switzerland, the Middle East and Asia.The transaction was announced to the market with initial price guidance of 5.875% area for a benchmark-sized issue. This was revised first to 5.625% before one further cut to the final level of 5.50%.Yapi, along with most other Turkish banks, had benefited from a strong rally that pushed its senior notes tighter by 65bp between announcement of the sub-debt trade and the pricing date.That meant the senior notes were trading at around 262bp over swaps at the time. The subordinated notes were issued at 392bp over 10-year mid-swaps. That represented a 10bp or so new issue premium, according to a banker away from the deal, compared with the senior/subordinated differential for other Turkish lenders.Isbank, for example, was trading at around 241bp in senior 2017 bonds and at 367bp for its subordinated 2022s, while Vakif’s 2017 senior notes were at 252bp and its 2022 Tier 2 bonds at 377bp.That premium was one of the reasons why Yapi’s new bond, which was priced at par, jumped to around 101.50 in the aftermarket.“I thought it was a good trade overall. Guidance looked wide initially but I can’t fault the final result,” said a rival banker.The trade also undoubtedly benefited from a calm market backdrop as equity markets rallied thanks to positive messages from US policy-makers about the fiscal cliff.The terms represented the lowest ever yield and credit spread achieved among all of the Turkish Tier 2 subordinated transactions.The allocation of the paper was mostly to funds at 58% and private banks at 32%. Insurers and pension funds took 9% and others the rest. By geography, UK and European investors took 59%, the US and Canada 23%, Asia 14%, the Middle East 3% and Latin America 1%.The issue is rated Ba1 by Moody’s and BBB– by Fitch – the highest-rated sub-debt transaction from Turkey. Yapi had approval to raise up to US$1.5bn but decided that US$1bn was sufficient.

The lasting reputation of European corporate bonds as a safe asset class will spur hybrid note issuance and deals from unrated companies in 2013, industry experts agreed last week.Speaking at the Euromoney Corporate Financing Forum in Paris, syndicate and origination officials said they expected corporate borrowers to continue taking advantage of low funding costs by issuing debt in 2013 but that they would likely use growing investor hunger for yield to sell riskier products.Hybrid debt, for example, still offers investors an attractive pick-up over plain vanilla bonds, even though the spread differential between the two sectors has tightened significantly over the past 12 months.“The amount of hybrid debt issued by corporates is still merely a fraction of that issued by financials,” said Alvaro Camara, managing director of financial institutions group at Goldman Sachs.“I’m surprised that we haven’t seen more from corporates, especially considering it’s never been cheaper for corporates to fund and the hybrids they issue are also more investor friendly than hybrids issued by financials,” he added, referring to the lack of write-down triggers in hybrid corporate deals.Leading by exampleYear to-date, about €11bn worth of hybrid corporate bonds has been issued, despite volatile conditions which hinder the issuance of these securities.Companies like BG Group, RWE and SSE all priced well-received deals that tightened in secondary markets, helping to bolster their debt-to-equity ratios and credentials with the ratings agencies.In September, crossover credit ArcelorMittal printed a perpetual non-call five-year hybrid. All the deals have traded up since pricing, hitting cash prices between 102 and 110.Bankers suggested that OMV, Linde, Siemens, Solvay, Wienerberger and Henkel could come to the market in 2013.They also said that issuers in the utility, telecoms and chemicals or pharmaceutical sectors would make ideal candidates for hybrids, especially given the capital-intensive nature of the industries and their predictable and stable cashflow generation.From an issuer’s perspective, one appeal of selling subordinated debt is that the cost of raising traditional equity is still relatively high in historical terms. In addition, interest payments on the bonds are tax deductible.Speaking on the sidelines of the forum, one senior treasury official at a multinational corporate told IFR he thought the hybrid product was hugely beneficial and that it is definitely something he would consider with regard to future funding options.“At the moment though, we have plenty of cash on our balance sheets so there is no immediate need,” he said.Unrated valueA second way for investors to source bonds with additional yield in 2013 could be by investing in unrated credits.Ten benchmark-sized deals have been issued by unrated corporates with implied investment-grade or crossover ratings so far in 2012, and that number will at least be equalled and could double in 2013, according to estimates from a number of bankers.David Schmidt, head of corporate origination at Commerzbank, said that, in some respects, now was an ideal time for unrated corporates to come to market.Aside from record-low coupons whetting asset managers’ appetites for riskier products, investors also have greater credit expertise than they have had in the past.He said that because corporates are looking at so many ways to diversify funding, investors are naturally becoming more aware of the products available too.As long as issuers have a solid credit story, a sound understanding of the investor base they are targeting and a good sense of timing, then there shouldn’t be any problems, Schmidt said. “It is key that an issuer is able to identify the right maturity. Anything longer than 10 years will unlikely appeal to retail investors.”

European treasurers and bankers said investment-grade corporate debt will likely remain the asset class of choice in 2013 as investors continue to prefer it to bank and sovereign bonds.The corporate bond market will likely remain broadly insulated from the European financial crisis, despite downbeat macroeconomic headlines and ongoing fears over the availability of funding in other asset classes, speakers at a Euromoney Corporate Financing Forum in Paris said on Wednesday.“Sovereigns and banks are no longer a safe haven,” said Tron Vormeland, vice-president and head of corporate finance at Statoil ASA, adding that corporates were therefore the natural alternative.At the same time, conference participants also downplayed talk of a bubble forming in the corporate bond market.Fred Zorzi, global head of syndicate at BNP Paribas, stressed that the market was still very rational, despite the sheer volume of supply over the past 12 months.Investors are very aware of where they are putting their money and of the risks associated with the bonds that they do buy, he added.So far this year, European corporate bond issuance in euros has reached €212bn, outpacing every year in the last decade except 2009, when companies rushed to build cash buffers in the wake of the sub-prime crisis in the US.Despite the weight of supply this year, issuers remained upbeat about future funding prospects in the bond market.Changed funding modelCorporate funding models have changed dramatically over the past two years as strict capital rules placed on banks have reduced their capacity to lend, pushing corporates into the bond market instead.That trend will continue, said Zorzi.“There has been a lot of talk about liquidity and regulation but let’s not forget that, in Europe at least, the market is still growing and everyone is still learning,” he said.“If we look to the United States, we can see that this type of model is sustainable. Despite a lot of uncertainty, we have seen really good performance in the bond market over the last months.”Several other treasurers emphasised the importance of weighing risks and approaching the right investors.Emmanuel Rapin, group treasurer at unrated French media conglomerate Lagardere, highlighted the importance of niche markets and how they can contribute to the efficient diversification of funding operations.“It’s also about trust,” he said, explaining that in the current market environment, characterised by volatility and headline risk, winning investor trust was key.Lagardere printed a 4.125% €500m five-year bond in mid-October that garnered a book of €4.5bn, demonstrating that investor hunger for yield is helping even lesser known issuers and unrated names fund in the bond market at attractive levels.Since pricing at mid-swaps plus 325bp, that bond has tightened by 60bp to trade around 265bp over.Other lower rated issuers, including Fiat Finance & Trade and Italian gaming company Lottomatica, also proved last week that investors are willing to move down the credit curve.Fiat F&T, rated B1/BB–/BB, attracted a €1.1bn book for a €400m tap on Monday, while Lottomatica, rated Baa3/BBB–, priced a €500m long seven-year bond on Wednesday with no concession, on the back of a €5.5bn-plus order book.