Grenke scraped over the finishing line with its first euro benchmark trade on Thursday, although it came with a very high price tag of an 8% yield. The issuance is, however, an achievement in itself for the German leasing company, which had to postpone a transaction last year while facing elevated credit risk costs and recovering from a short-seller attack in 2020.
The €500m April 2027s, which were also the company's inaugural green offering, gained final books of just over €650m, including €20m from the leads. Given the weak order size, the issuer failed to tighten pricing from the 8% area initial price thoughts.
To put the pricing into context, high-yield borrower Webuild (BB/BB) landed a €450m five-year bond at 98.982 to yield 7.25% on Wednesday, while German pharmaceutical Bayer raised €750m from a non-call 5.25 hybrid at 6.75%. That issue was rated Ba1/BB+/BBB–.
"It's an expensive trade for Grenke but the company still got it done and it finally has a benchmark deal, which is a good outcome – it might be a better trade than what it looks like from the outside," said a syndicate banker. "The deal will perform in the secondary – it has a rating and there will be yield buyers chasing it."
The financials and corporate crossover borrower, rated BBB/BBB, previously printed euro senior issues only in sizes ranging from €100m to €300m, according to IFR data. The company was exploring a benchmark size in September last year but that deal got postponed after coming on a busy day that offered investors plenty of options.
Given that backdrop and a recent rating downgrade, the three-day investor calls that finished on Wednesday made sense. S&P cut Grenke's long-term issuer credit rating to BBB from BBB+ in March, citing the increase in interest rates, inflation and credit risk costs that will weigh on the company's margins.
"We project that the bank's cost of risk and non-performing loans will be elevated but manageable," the agency wrote.
While expectations regarding interest rates reaching their peak levels have been bolstered in recent weeks, the Federal Reserve spooked markets overnight with a hawkish pause. The US central bank left rates unchanged on Wednesday but policymakers projected a further rise by the end of the year.
"It wasn't an easy market today," the banker said.
Tough markets and a difficult economic environment were not the only hurdles Grenke had to overcome. Though both S&P and Fitch assess that the company has materially improved its transparency, risk governance and oversight, including money-laundering prevention, since 2020, the company is still reeling from short-seller Viceroy Research's attack.
"Grenke has resolved most of the governance, policy and accounting findings discovered in the follow-up audits ... with only some remedial actions, mostly related to IT, remaining outstanding," Fitch wrote.
Grenke being an infrequent issuer could have further dented demand, though the green label and a concurrent tender offer would have been helpful for the deal to get over the line. Grenke Finance is looking to buy back its €300m 1.625% April 2024s and €150m 4.125% October 2024s for cash. The respective prices are 98.70 and 99.375 and the offer is capped at the size of the new issue.
Grenke Finance is also the issuer of the new bonds, which were printed through joint bookrunners Deutsche Bank, Goldman Sachs and HSBC.