Some analysts and investors had suggested that UGI International’s latest bond offering might see a baked in premium because of the questionable ESG credentials of its parent's operations, but with leads announcing pricing on Wednesday, these concerns appear to have been unfounded.
The yield and coupon on the issuer’s €400m eight-year non-call three-year senior - which it will use to finance the November call of its €350m 3.25% November 2025s – was set at 2.5%, at the tight end of price guidance.
Some market participants had wondered whether UGII (Ba1/BB+) would have to offer up more generous pricing than similarly rated issuers from other sectors during the marketing phase, to compensate for some form of ESG risk, given UGI’s association with natural gas.
“UGI [International] is fine, the problem is that it’s increasingly difficult for some funds to hold it depending on their ESG guidelines,” said one high-yield investor.
“The European business [UGI International] distributes gas around Europe – that’s fine. But the parent [UGI Corporation] operations are considered dirty. But it will be good for some of our accounts. If they don’t squeeze the hell out of the pricing it will work for us.”
UGII is an energy marketer and distributes liquefied petroleum gas in Europe. It is part of UGIC, which, among other things, is active in natural gas and electricity generation.
Research analysts agreed that ESG concerns could well have impacted the early stages of pricing.
“Based on IPT of 2.5-2.75%, the market seems to be asking for some premium for these Ba1 rated notes, probably because demand for natural gas products is suffering from a long-term decline and because there are no sustainability-linked targets attached in the indentures,” wrote the Spread Research analysts.
However, those involved in the deal indicated that there was no ESG-related impact on either demand or for the final pricing.
“They priced an eight-year at 2.5% and honestly, I can’t think of that many Double Bs that come much tighter,” said one banker.
“Maybe in proper oil and gas you would get more of this ESG premium, but I have not heard of any accounts that said they couldn’t buy this because of ESG reasons and looking at the price action, I think this is probably the best result you are going to be getting at this time of year.”
BNP Paribas acted as lead-left, as well as global coordinator and joint bookrunner alongside HSBC and Credit Agricole.
ING, Mediobanca, Natixis, Societe Generale, Barclays and RBI were joint books.
Also on Wednesday, Casino (B3/B) announced the results of tender offers targeting two of its EMTNs.
The issuer is repurchasing €51.4m of its 4.561% January 2023s and €53.4m of its 4.498% March 2024s, leaving €219.5m and €557.7m outstanding.
On Tuesday, the French supermarket increased its senior secured term loan add-on to €425m from €400m.
The covenant-lite fungible loan will mature on August 31 2025 and priced at 400bp over Euribor, the same as the existing facility, with a 0% floor and an OID of 99.25 from guidance of 99-99.25.
Proceeds are being used to repay MTNs and put cash on the senior secured segregated accounts for future debt repayments.
Refiled story: Refiles to correct syntax in first paragraph