Stellantis took advantage of the respite in market volatility to bring forward a US$2.25bn three-part offering on Wednesday, amid concerns that president Trump's tariffs on Canada and Mexico will disrupt carmakers reliant on supply chains running across the US's neighbors.
The bond deal, Stellantis' first offering in US dollars since September 2022, came at a difficult time. Credit spreads for automotive issuers like Stellantis have widened – drawing the brunt of the sell-off in high-grade corporate credit this year – due to worries over escalating import duties.
"Stellantis hasn't been in the US dollar market for a while," said a lead. "These are the types of issuers who are looking at markets and asking themselves, 'Is this going to get better or is it going to get worse? If I don't have a strong view of it getting better, why don't we do the deal now?'"
Bankers said the market remained open to the industry, as long as the sector's borrowers were willing to part with higher concessions.
"Have you seen some volatility in autos? Sure you have, but it hasn't been overwhelming," said a syndicate banker away from the trade. "Importantly, it hasn't precluded their ability to access capital markets in any way, shape or form."
Ahead of today, market participants pointed to General Motors Financial's ability to price a US$2.25bn bond on February 27 as an indication that the market was open to Stellantis, too.
Generous spreads
As expected, Stellantis offered alluring spreads to get the fundraising done, a function of how the issuer's US dollar bonds have widened more than its euro debt, according to another lead before the deal launched.
The new issue also benefited from a better tone in US equities following lower-than-expected February inflation data released in the morning.
"The question is can you put enough basis points to get a deal across the line. By and large, the answer is still yes," said the first lead.
Through its US financing subsidiary, the carmaker issued US$500m three-year, US$750m five-year and US$1bn 10-year senior unsecured notes. Bookrunners priced the fixed-rate tranches at US Treasuries plus 140bp, 170bp and 215bp, respectively, coming in by 25bp–35bp from IPTS.
Those generous spreads were appetizing to investors, said a buyside source, noting that the issue was "coming cheap" to its rating of Baa1/BBB and therefore anticipated interest from crossover investors. By comparison, the average Triple B rated US corporate bond traded at a spread of 116bp over on Tuesday, according to ICE BofA index data.
Besides the broader tariff worries that have hit the car industry, Stellantis' spreads also reflect the company's individual troubles, which have attracted scrutiny from credit graders. S&P cut Stellantis' rating by one notch to BBB on March 6 after the company reported an Ebitda margin of 5.8% for 2024, below the rating agency's forecast of 6.6%.
"Stellantis is the one that is struggling the most out of the three," said the buyside source, referring to the so-called Big Three carmakers with major US operations – Ford, General Motors and Stellantis.
Still, there are signs that the company could navigate the uncertain policy backdrop. Stellantis received a one-month exemption to tariffs on Canadian and Mexican imports because the company complies with the US-Mexico-Canada Agreement.
Active leads for the 144a/Reg S offering were Credit Agricole, Citigroup, BNP Paribas, JP Morgan, Morgan Stanley, Natixis, RBC Capital Markets and SMBC.
Additional reporting by Sudip Roy
Corrected story: Fixes tenors