Two airport operators announced euro 10-year sustainability-linked bonds on Monday, with one pricing a new issue, while the other began marketing its deal.
In what bankers said was simply a coincidence, Heathrow Funding announced a debut benchmarked-sized SLB mandate (Class A senior secured), while Aeroporti di Roma priced a well-received €400m 10-year sustainability-linked bond (senior unsecured). It did, though, have to pay a double-digit new issue premium.
The Italian airport operator started with a concession of 50bp at initial price thoughts of 230bp area over swaps, according to bankers on and away from the transaction. A final book of over €1.9bn enabled leads to cut pricing to plus 195bp, but that still left a premium of 15bp.
"I am sure some orders would have been bigger if it was benchmark [sized] but we didn't need bigger orders," said a syndicate head who was on the trade. "It's not like they even had to offer any higher spread [compared to recent issues]."
The deal's successful outcome drew a contrast with another sub-benchmark transaction, from German family holding company Franz Haniel & Cie, that was pulled on Friday. One or two other recent new issues in general have also struggled, such as Porsche Automobil Holding's €500m September 2027s, which wasn't fully covered, calling into question the state of the market, though the syndicate head said there was a specific reason behind those deals' difficulties.
"All of the [undercovered and cancelled] deals last week were valuation driven – they would have been solved by coming with the right pricing and not trying to be too ambitious and being realistic," said the banker. "Investors are very price-sensitive."
ADR, however, showed that investors are still keen on paper at the right valuation. The airport operator was the first investment-grade borrower to tap the euro primary market since last Wednesday as Thames Water headlines put a pause on supply. Heathrow will put investor sentiment towards UK infrastructure, specifically, to the test with its deal, though bankers said the fact it has been announced shows that Thames Water is a distinct story.
"The market generally feels really firm with good engagement from investors at current yield levels and some data points like the US GDP print last week [that showed the economy expanded at a faster pace than initially estimated]. Rate hikes are pretty well priced in at current levels too," said a second syndicate banker.
ADR (Baa2/BBB/BBB–) is no stranger to ESG financing – in April 2021 it became the first airport to issue an SLB. In this latest deal, if the company misses its carbon emissions targets, there is a maximum cumulative coupon step of 120bp, which is higher than the market standard of 75bp.
Proceeds from the bonds will be used for general corporate purposes, including a concurrent tender offer on its €500m 1.625% June 2027s.
"Sizing was all an economic decision around optimising cost of carry. They didn't want or need the €500m given the LM plans that had a €150m cap," said a second lead.
Banca Akros, Barclays, BNP Paribas, Bank of America, Credit Agricole, IMI-Intesa Sanpaolo, Mediobanca, Natixis, Santander, Societe Generale and UniCredit were the bookrunners.
CRH (Baa1/BBB+/BBB+) was also added to the pipeline and is preparing to print a euro benchmark three-tranche offering, consisting of four, eight and 12-year tenors, through CRH SMW Finance. BNP Paribas, Citigroup, Danske Bank, Mizuho and NatWest Markets are joint lead managers for investor calls starting on Monday.
Price sensitive
As for Franz Haniel (Baa3/BBB–, Moody's/Scope), a lead on that five-year deal said the main reason behind the cancellation was down to different pricing expectations between the issuer and investors, given the prospective €300m issue size and how infrequently the company comes to market. The last time it issued a public bond was in 2012, according to IFR data, making it difficult to pinpoint where fair value is.
"Investor feedback for the deal [during roadshow] was around 340bp over mid-swaps and that's a yield of around 6% to 7%. So the issuer would ask: 'Do I really want to pay this yield or just wait for the end of summer for a more favourable environment?'," said the lead.
Comparables for the pulled trade included Wendel's 4.5% June 2030s, Pirelli's 4.25% January 2028s and Werfen's 4.625% June 2028s that were bid at 149bp, 135bp and 161bp, respectively.
Alperia's debut benchmark euro transaction on Wednesday last week was not helpful either, the lead said. That deal struggled to get over the line, with final terms unchanged from initial price thoughts, with books of just €670m-plus for a €500m five-year green bond.
"The flavour of [last] week wasn't so good for an infrequent issuer [like Franz Haniel] with a trade that's almost like its inaugural offering," the lead said.
DZ Bank and UniCredit were the leads.
Franz Haniel was seeking to issue via the European Primary Placement Facility, which is a platform aimed at low-cost capital markets funding for small and mid-cap firms.