Werfen and Arval underscore rates curve inversion

2 min read
Jihye Hwang

Two issuers with very different ratings and very different tenors priced euro bonds with the same coupons on Thursday, highlighting how the inversion of rates curves has changed the dynamics of the primary market.

Spanish medical equipment company Werfen (BBB–, stable/BBB–, positive) and BNP Paribas subsidiary, Arval Service Lease, (A–/A) respectively printed €500m June 2028s and €600m December 2024s with coupons of 4.625%. Indeed, at IPTs, Arval's 18-month note was offering a higher potential yield than Werfen's five-year bond, despite being much higher rated, because of the distortions in the rates markets.

"The 18-month and five-year swap curve is inverted by 55bp," said a lead, adding that financials, in general, are cheap compared with corporates. "It's a theme we've been hammering all year but people just like corporates more."

By the end, Werfen did offer a higher yield than Arval, but only marginally so, and in spread terms came much wider. It landed its deal at 160bp over swaps, 15bp inside IPTs, to yield 4.823%. Car leasing company, Arval, launched its note 95bp over swaps, 25bp inside IPTs, to yield 4.757%.

On Werfen, a second lead spotted fair value in the 135bp area. Books were around €1bn when guidance was set in the range of 160bp–165bp via global coordinators BBVA, BNP Paribas, CaixaBank and HSBC. They were also joint bookrunners with Banco Sabadell, Bank of America, Citigroup, Deutsche Bank, IMI-Intesa Sanpaolo, JP Morgan, Mediobanca, MUFG, Natixis and UniCredit.

Proceeds will be used to repay part of a bridge loan financing that the company put in place to fund the acquisition of Immucor, a transfusion and transplantation diagnostic products provider. The acquisition closed in March for an approximate cost of US$2bn, according to S&P.

Arval's deal priced about 15bp back of fair value, according to the second lead. Final demand was in excess of €2.05bn via BBVA, BNP Paribas, HSBC, ING, Santander and UniCredit. As a leasing company, Arval can fall between the cracks of corporate and FIG portfolios.