Nestle unwraps long-end demand

4 min read
Ed Clark

Nestle waded into the primary to raise €3.15bn across four tranches on Wednesday, and with solid demand and a limited or zero premium on the 20-year part, the deal demonstrated that investors are once again developing an appetite for longer-dated corporate euro issues.

The Swiss food and drink maker (Aa3/AA-) decided to take on fresh funding while conditions are supportive and competing supply low. While Dutch utility Tennet (A3/A-) printed a €650m 1.125% June 2041 last week as part of a triple-tranche exercise, that was a green bond and had its own dynamics.

“The market is open, they were looking for a window and the pricing that they wanted was available to them,” said a syndicate banker.

The only other euro high-grade corporate in the market was the EM-flavoured SPP distribucia - the Slovak Republic's natural monopoly gas distributor – with a €500m 10-year.

Nestle (Aa3/AA-) issued €1.25bn June 2026s, €750m June 2029s, €500m February 2034s and €650m June 2041, with spreads set at 22bp, 32bp, 40bp and 50bp, over mid-swaps.

One banker involved in the transaction placed fair values at 25bp, 28bp, 36bp and 45bp while a syndicate official off the deal plumped for around 25bp, 30bp-35bp, 40bp and 50bp.

BNP Paribas, Deutsche Bank, HSBC, ING, JP Morgan and Mizuho ran the deal.

In keeping with what has been seen in the high-grade market of late, leads gave plenty of leeway in terms of premium at IPTs on the 20-year tranche, with bankers on and away from the deal seeing a concession of around 25bp-35bp, based on the 75bp-80bp starting point.

IPTs for the other bonds were 45bp area, 50bp-55bp and 60bp-65bp.

Last month’s volatility in rates caused some investors to become wary of longer-dated bonds.

“The spread on a shorter-dated lower Triple B is pretty insulating against moves in rates,” said one fund manager. “It’s when you look at high-quality longer-dated bonds, they are the ones that are much more sensitive to the moves in government bond yields.”

Bankers, however, say that they are seeing this attitude begin to ease and appetite for longer-dated issues from corporates gradually return.

“Certainly last month the interest in duration was limited but I get the sense that that attitude is disappearing slightly now,” said a second syndicate official. “There is an acceptance that the new rates paradigm will likely persist.”

This seemed to be borne out by the books of Nestle’s transaction. Although the shortest tranche achieved the largest book, with orders exceeding €2.8bn at the last update, as well as a negative new issue premium, it was the 20-year that mustered the second largest volume of orders, reaching over €1.7bn.

Books for both other legs exceeded €1.5bn each.

The stated use-of-proceeds for the new issue is general corporate purposes. The issuer has €1bn of bonds falling due in the second half of this year and in April it was announced that Nestle was expanding its portfolio of health and nutrition products with the US$5.75bn acquisition of The Bountiful Company’s core brands.

Issuers have been able to achieve strong executions this week. However, expectations are that the supply of new corporate investment-grade bonds should be muted over the coming days in light of European public holidays on Thursday. June, overall, should see a decent supply of deals given the approaching market slowdown in July.

“Trades are being fairly well-received and performing okay in the secondary market and on top of that you have issuers wanting to get funding done before the summer,” said the second syndicate banker.