Wessex Water wades through Deutsche Bank storm

IFR 2476 - 25 Mar 2023 - 31 Mar 2023
4 min read

Wessex Water Services overcame a drastically deteriorating market tone to print a £300m long nine-year sustainability bond on Friday, further underlining how investors are happy to buy corporate credits even as US and European banks come under selling pressure.

The October 2032 bond was the first sterling transaction in more than two weeks and came a day after Volkswagen broke a mini-drought in the euro market. "Anything that is not a financial is absolutely fine," said a lead on the Wessex deal.

The UK utility, rated Baa1/BBB+, Moody’s/Fitch, went ahead with the deal even as investors' attention turned to Deutsche Bank, whose shares were down 14% at one point, though few could pinpoint why, other than a fearful market.

None of that stopped Wessex getting more than £900m of orders for the deal, allowing leads Barclays, HSBC and NatWest Markets to tighten pricing by 25bp from initial price thoughts of the 230bp area over Gilts.

Bookrunners, though, skipped the guidance announcement after IPTs and went straight to set final terms at 205bp, paying up by around 20bp, according to bankers on and off the trade.

"We certainly need to move quick here – have gone straight to final spread," said another lead banker, during deal execution.

The fresh bout of volatility prompted the deal's benchmark Gilt of 4.25% June 2032s to rally by roughly 20bp by the time the deal launched from the market open. That meant the issuer was partially compensated for what it had to pay up in spread terms. Wessex's new bonds priced at a coupon of 5.125%.

Even before the final terms were set, one syndicate banker away was expecting the deal to price through the uncertainty.

"[Wessex Water] is a rare utility and started IPTs at sensible levels with a decent spread, so it will be fine. The sterling market is also less reactive to intraday volatility, so a flighty day has less of an impact compared to other areas of the market," he said.

Limited supply until Easter

While this deal and VW's should provide other issuers with some confidence, bankers are not expecting much supply in the run-up to Easter in mid-April.

"The Wessex deal is another demonstration after Volkswagen's that the market is open and that investors have cash to deploy for the right name and sector, but the real test of volume and risk appetite will be post-Easter," said a syndicate head.

Another syndicate head said: "I don't think the pre-Easter supply will be huge, and that's what we expected before today's banking sector sell-off. The supply will continue but will be contingent on markets."

Some borrowers may also have missed the window to raise funds before reporting season starts, as jitters around the banking sector forced them to stay on the sidelines. US flooring manufacturer Mohawk Industries and Norwegian oil and gas producer Var Energi have been waiting for a window since early March.

"It's a little bit frustrating to see the Deutsche Bank stock plummeting and it's not great for the pipeline because, in the middle of the week, it seemed like the market was set for a restart. This is just going to mean that issuance will be driven by the market, so hopefully we have a stable open on Monday," said the first syndicate banker.

Moeller-Maersk has launched a cash tender offer for its £300m 4% April 2025s via joint dealer managers Credit Agricole and Deutsche Bank. Citibank is the tender and information agent. The offer expires on March 30.