Reverse Yankee Bond House: Societe Generale

IFR Awards 2023
5 min read
Sudip Roy

Punching above its weight

Societe Generale brought an array of non-European issuers to the euro market in 2023, delivering diversification for its clients and pricing arbitrage opportunities too. Its ability to leverage the capabilities of its cross-currency platform and provide leadership makes Societe Generale IFR’s Reverse Yankee Bond House of the Year.

The euro market may never match the depth of its US dollar counterpart but for non-European borrowers it still offers a valuable alternative funding channel.

Naturally, the pricing arbitrage will have a big influence on issuance volumes, but strategic needs also play a key role, especially for the biggest corporates and financial institutions.

In 2023, reverse Yankee issuance bounced back from a poor 2022, albeit at volumes well below their pre-Covid-19 peak. Corporates such as AT&T, Caterpillar, Paccar, Ford, GM, Toyota and McDonald’s were all active in the euro market. What did they have in common? Societe Generale, which acted as a bookrunner for all of them.

Reverse Yankees isn’t the most natural business for SG, competing against the big US banks, and yet it punched above its weight, with a series of deals that required leadership and advice.

In late February, for example, AT&T returned to the euro market for the first time since 2020. The US telecoms had a US$2.5bn term loan outstanding that had been partially refinanced by a US$1.75bn bond in mid-February.

Andrew Menzies, global head of debt capital markets at SG, said: “We noticed they didn’t do the full amount. We had talked to them about the diversification opportunity and there was some pricing arbitrage too.”

The company ended up issuing a €1.25bn two-year FRN, which priced at three-month Euribor plus 40bp. SG acted as sole bookrunner.

“We had been talking to money market funds, but they were very cautious about levels, especially for private placements,” said Duane Elgey, head of European corporate syndicate. Burnt by the spike in rates, these funds wanted pricing at spreads in the mid-50s, a level that didn’t make sense for many issuers.

SG, though, was able to deliver much more competitive pricing by going down the public route. Final terms were inside even loan market levels. The bank began marketing the deal at plus 45bp area for a minimum size of €750m. But such was demand that the deal was upsized.

Three months later, AT&T returned to the euro market with a €3.25bn triple-tranche transaction on which SG also had a role.

In August, manufacturing company Caterpillar returned to the euro market for the first time in nearly a decade, with an €800m three-year note. “The mandate may have existed for about six months,” said Menzies. “They were always very positive about the demand they would see from European investors. It’s one of those names that people feel they know at a personal level.”

Caterpillar did some marketing pre-summer, but then the market turned. “Patience was required,” said Menzies. In the end, the issuer managed to price inside pre-summer levels, at 25bp over swaps.

“Doing euros helped with diversification and took some pressure off their dollar curve,” said Menzies.

The size of the deal was also notable. When Caterpillar issued before in the euro market, it did so usually through €300m deals. But with the need to fund its European businesses, a bigger size made sense, which also helped drive demand.

It was a similar story for the financial arm of trucks manufacturer Paccar Financial. In May, it did a €500m three-year deal. “They used to do €300m deals; now they did €500m and the benchmark size got extra interest,” said Menzies.

Paccar was one of a number of non-European automakers that SG acted on behalf of, with Ford Credit, Toyota Financial Services and GM Financial also on the client list. For Toyota, the French bank was mandated both for a €1.3bn dual-tranche offering in January and a €750m deal in September.

Another reverse Yankee issuer that the bank has strong relations with is McDonald’s. In February, SG was an active bookrunner on the US fast food chain’s €1bn dual-tranche deal, with the trade evenly split between seven and 12-year tranches. It came at a tricky time for credit markets, with issuers having to pay relatively big concessions. But it got done.

“We were able to bring some great trades,” said Menzies.

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