Luxury sports carmaker Ferrari harnessed substantial support for its first deal in three years on Wednesday, with books more than five times covered for a €650m five-year trade that launched with zero concession.
The company, known for its red Formula One racing cars and its prancing horse logo, began marketing the 2025 note at swaps plus 260bp area for an expected €500m.
However, peak books of more than €3.3bn allowed for a bigger deal for the unrated issuer and a price tightening of 60bp.
"Its unrated nature means it falls between the cracks – off benchmark for both investment-grade and high-yield investors and pricing doesn't really offer enough juice for high-yield," said David McFayden, an investment manager in fixed income at Kames.
McFayden pointed to the fact that Ferrari's 1.5% March 2023s were quoted around 40bp before the crisis.
"It might look appealing to investment-grade investors who want to flex their high yield/non-rated bucket and are willing to buy into luxury autos," he said.
"Pre-crisis spreads indicate to me - as a high-yield guy - that these guys have historically traded in the higher echelons of investment-grade rather than being a crossover credit."
A second high-yield investor also said that spreads looked too skinny to interest him.
"It's a really high quality company," he said. "It's not a business in trouble but happens to be in a sector everyone is worried about. The equity on Ferrari is unbelievable. Since they IPO'd, they've absolutely smashed it."
Ferrari went public in 2015 at US$52 a share. The stock is now quoted at over US$146, according to Refinitiv Eikon.
A lead said that the lack of rating did not necessarily imply extra risk compared to other carmakers.
"The credit metrics and balance sheet metrics point to a solid IG company," he said, adding that it made sense to look beyond the nature of Ferrari's most famous product.
"This is not an auto," he said. "This is a luxury brand, possibly the most desirable one in the whole world!"
"RICH GETTING RICHER"
McFayden agreed that it was not a clear case of comparing Ferrari to more traditional automakers, saying the credit looks closer to luxury brands LVMH or Hermes than a car manufacturer.
"The thematic trend of the global rich getting richer should underpin long-term demand for these cars," said McFayden.
"Ultra-luxury manufacturers also have the benefit of being able to drive demand through new model launches, which they have much more success with than a normal manufacturer does."
Ferrari is not immune to cyclicality, McFayden said, but he sees the equity value in the business as clear.
Ferrari said in early May that it expects adjusted Ebitda this year to edge down from 2019 levels to €1.05bn-€1.20bn.
"[They have] huge operating margins," said the lead. "The rich will still be able to buy Ferraris even with an economic crash. They were the only ones buying them before the crash too."
Ferrari doubled its committed credit lines to €700m in April as it geared up for a resumption of production in the wake of the coronavirus crisis. The credit lines have maturities of 18–24 months.
Ferrari had total available liquidity of €1.23bn at the end of March, including its undrawn €350m revolving credit facility put in place in December.
Leads distributed a wide range of comps for the note, with the starting level for Ferrari about 130bp back of BMW (A2/A) and 80bp wide of the May 2025 from Volvo (A3/A-).
On the unrated side, possible pricing comparisons included France-headquartered testing, inspection and certification agency Bureau Veritas and Belgian investment company Groupe Bruxelles Lambert. The issuers have January 2025 and June 2025 bonds, respectively, both seen at 226bp.
CreditSights analysts said they would have been buyers of Ferrari up to around 220bp, which they said would have provided a 20bp concession.
Ferrari was able to print inside that level to set the spread at 200bp.
The company made its bond market debut in 2016 with €500m 1.5% March 2023s, then followed it up in late 2017 with a €500m 0.25% January 2021 note. The bonds were the subject of a cash tender in 2019.
Banca IMI, Barclays, BNP Paribas, Bank of America, Goldman Sachs, JP Morgan and UniCredit were bookrunners for the latest trade.