Corporates seize opportunity ahead of potential supply surge

3 min read
Jihye Hwang

Three high-grade corporate borrowers hit the euro bond market on Monday to stay ahead of a potential surge in supply later this week and taking advantage of pent-up demand.

All three deals, however, had to pay double-digit new issue premiums, although the debut nature of Suez's (Baa2, Moody's) €2.6bn triple-tranche green offering made it difficult to derive fair value. Finnish issuer UPM-Kymmene (Baa1/BBB, Moody's/S&P) and German company Wuerth (A, S&P) tapped the market with single-tranche trades of €500m and €600m, respectively.

"It's a relatively successful day where investors got good value," said a syndicate official.

French water management company Suez, formerly known as Sonate Bidco, went for size for its inaugural offering after it acquired old Suez's water and waste assets from Veolia. A €750m five-year, €850m eight-year and €1bn 12-year landed at mid-swaps plus 65bp, 90bp and 118bp, which one syndicate banker described as paying concessions of around 20bp with reference to Veolia's secondary curve. The deal gained orders of over €9.4bn.

Initial price thoughts were 100bp area, 120bp area and 150bp area. Suez's global coordinators were BNP Paribas, Credit Agricole, Natixis, Santander and Societe Generale. BBVA, ING, IMI-Intesa Sanpaolo, La Banque Postale, NatWest Markets, Morgan Stanley, MUFG and UniCredit were active bookrunners.

Despite being a Single A name, Wuerth paid a premium of 15bp, according to a lead. The 8.25-year senior note launched at 60bp after gaining books of more than €1.1bn via DZ Bank, Santander, UBS and UniCredit. IPTs were mid-swaps plus 75bp–80bp area.

Some syndicate bankers saw the deal as paying as high as 25bp, but the lead said the German manufacturer has only two old bonds outstanding, with levels that were not reflective of current market conditions.

"We knew Suez was coming so not a big surprise there but there's a pipeline building up, so we didn't want to be thrown under the bus by waiting," said the lead.

"The market was not overly constructive but not bad either. The issuer is also not the riskiest name and has some tailwind through being a company that everyone knows in Germany. It's a low beta name with a domestic bid."

Finnish forest industry company UPM paid the smallest concession of 13bp after landing at 88bp, according to syndicate bankers. Books for the seven-year no-grow green note peaked at over €1.5bn before settling in at more than €1.25bn via Citigroup, Commerzbank, Credit Agricole, Nordea and Swedbank. IPTs were mid-swaps plus 115bp area.

All three deals are eligible for the ECB's CSPP bond-buying programme, reinforcing the strong technicals arising from recent sluggish bond supply.

"The technical is helping, with supply down so much last month," said a syndicate head.

While May is historically a busy month for euro IG corporates, bond sales so far this month have come in at around €13.8bn, including Monday's trades, largely in line with last year's €13.1bn, according to IFR data. Last month's sales, however, were down over 50% on a year-on-year comparison at €8.15bn.

"We're expecting a busier week than last week, and we're aware of some other trades that we're not engaged in," said the syndicate head.

The first syndicate official said "not all trades that wanted to come last week came," so there could be a surge in sales if market conditions hold up.