Leaning on its rising star status, Nexans is set to price on Wednesday an upsized five-year inaugural sustainability-linked bond that will refinance debt maturing this year.
The French cable manufacturer is set to raise €400m, €75m more than initially expected, after management said they would consider increasing the amount depending on market conditions.
The coupon was set at 5.5% at final terms for the April 2028 bond, with the transaction set to price at par. This is 25bp inside initial price thoughts of 5.75% area announced earlier in the day.
Investors expected demand to drive the yield lower, highlighting the likelihood that the company will be moved to an investment-grade rating in the near future. Their estimations of fair value ranged from 5% to 5.25%.
Marketing for the transaction started on Monday, drawing around 100 investors across a global investor call and small group meetings, according to an email update from a lead bank. Pricing indications came in the high 5s to 6%.
Nexans has two bonds outstanding: a €325m 3.75% August 2023 callable in May and a €200m 2.75% April 2024 callable in January. Proceeds from the transaction are earmarked to refinance the shorter-dated note, management said.
Market participants had anticipated a warm reception and smooth execution.
A banker away from the deal said a few investors were already engaged following a non-deal roadshow earlier this month. S&P has a BB+ rating and a positive outlook on the issuer, which is a market leader and a well-liked credit, the banker said.
Issuers and syndicate bankers are taking advantage of any opportune window to place deals, given market volatility, the banker said. Monday was “a good day” to kick off marketing as the Crossover index was tighter. If issuers don't seize the chance to issue, they could end up "waiting for ages" to tap the market, the banker said.
The iTraxx Crossover index was quoted at 486bp on Monday, down from roughly 497bp at Friday’s close, according to Tradeweb. Credit spreads have widened over the past couple of weeks after a spate of US regional bank failures and the downfall of Credit Suisse sent shockwaves across the sector.
However, high-yield bankers are less concerned now about execution risks, as pre-marketing has helped reduced uncertainty around investor commitments, though elevated funding costs remain an issue.
“A lot of pre-marketing is going on, but the key thing is whether issuers are comfortable with pricing,” the banker said.
Paying up
The rare corporate issuers that have ventured into the market shortly before Nexans have had to pay up to borrow.
High-grade Australian logistics company Brambles paid a new issue premium of around 35bp for a capped €500m 4.25% March 2031 in mid-March as concerns around the health of Credit Suisse gripped markets.
“If an IG company has to pay a 35bp NIP, what’s a high-yield credit going to pay?” the banker said.
In the euro high-yield market, German auto parts company Schaeffler also paid up to raise funds on Friday. It printed a €500m 8.75% five-year non-call two sustainability-linked senior secured PIK toggle note at a 9% yield via holdco IHO Verwaltungs.
“IHO had to pay up. Fair value was estimated at around 8% and it came in at a 9% yield,” the banker added.
The SLB structure could slightly reduce the cost of funding for Nexans.
One high-yield investor said the trade looked interesting and would give credibility to the borrower. He also said a labelled bond typically trades inside comparable unlabelled debt.
The greenium for a high-yield issuer is bigger than the 5bp–10bp on a high-grade deal, the investor said, adding the incentive for the issuer is the slightly cheaper cost of capital.
The company published its sustainable financing framework this month enabling it to issue in green, social and sustainable formats as well as sustainability-linked.
It opted for an SLB that includes a 50bp step-up on the last coupon if it misses one or both of two sustainability performance targets by December 31 2026. The KPIs are a 29.4% reduction in Scope 1 and 2 greenhouse gas emissions and a 21.8% reduction in cradle-to-shelf Scope 3 emissions.
Goldman Sachs is joint bookrunner alongside global coordinators Credit Agricole and BNP Paribas. BNPP is B&D while Credit Agricole advised on the sustainability-linked structure.
More to come?
Single B rated CABB Group held a series of non-deal investor meetings on Monday and Tuesday via Bank of America, Deutsche Bank and Goldman Sachs to provide an update on the credit and the latest developments of the German chemical company.
“Depending on [CABB's] financing needs, they could come very quickly to the market, though if pricing is too high they may look elsewhere," the banker said.
Also, as investment-grade issuers return to debt capital markets after a brief hiatus due to turbulence in the banking sector, the high-yield market could also get busier, the banker said.
“This could trickle through to the high-yield side before Easter."
Updated story: Updates with latest deal details