IFR Magazine – June 08, 2019

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@ visit http://www.ifre.com

Corporates bring life

to the long end

„ Bonds Pent up insurance and pension demand for duration

BY YORUK BAHCELI

4HEûBIDûFORûLONG

DATEDûBONDSûINû

THEûEUROûMARKETûWASûINûEVIDENCEû

LASTûWEEKûASûUNILEVERûANDûJOHN

DEEREûSOLDû

YEARûNOTESûBACKEDû

BYûDEMANDûFROMûPENSIONûFUNDSû

ANDûINSURERS

4HEûRECENTûRALLYûINûBONDû

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WITHû

YEARû"UNDSûHITTINGûANû

ALL

TIMEûLOWûYIELDûOFû

ûONû

4HURSDAYûWHILEûTHEû

YEARû

BENCHMARKûWASûCLOSEûTOûSETTINGû

AûNEWûRECORDûBIDûATûû

ACCORDINGûTOû2ElNITIVûDATA

7HILEûTHEûSHAKYûBACKDROPû

meant that most issuers in the

INVESTMENT

GRADEûMARKETûLASTû

WEEKûSTUCKûTOûSHORTER

DATEDû

TENORSûCONSUMERûGOODSû

COMPANYû5NILEVERûANDû53û

AGRICULTURALûMANUFACTURERû*OHNû

$EEREûTOOKûADVANTAGEûOFû

INVESTORSûDEMANDûFORûHIGHER

YIELDINGûPRODUCT

5NILEVERû!! ûPRICEDûAû

õMû*UNEûûBONDûATûBPû

OVERûMID

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ûONû4UESDAYûPARTûOFûAû

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INCLUDEDûAûaMû*ULYûû

NOTE

4HEûTENORSûWENTûAGAINSTû

CONVENTIONûASûHISTORICALLYû

ISSUERSûHAVEûTENDEDûTOûGOûLONGERû

INûSTERLINGûANDûSHORTERûINûEUROS

"UTûTHEûMOVEûPAIDûOFFû

5NILEVERûSECUREDûTHEûLOWESTû

YIELDûFORûAû3INGLEû!ûRATEDûNAMEû

ATûTHEûTENORûACCORDINGûTOûAû

BANKERûATûONEûOFûTHEûLEADS

)TûWASûFOLLOWEDûTHEûNEXTûDAYû

BYûAûõMû*UNEûûNOTEûFROMû

*OHNû$EEREû!!!  ûTHATûPRICEDû

ATûBPûOVERûSWAPSûTOûYIELDû



4HEûCHOICEûOFûTENORûWASûABOUTû

THEûENTITYû*OHNû$EEREûCAMEûTOû

MARKETûTOûlNANCEûAûLEADûBANKERû

SAID

h*OHNû$EEREûAREûDOINGûAû

LONGERûDEALûTOûlNANCEûTHEIRû

EQUIPMENTûOPERATIONSûNOTû

lNANCIALûSERVICESûWHICHûTENDSû

TOûBEûSHORTERvûTHEûBANKERûSAIDû

h)NûTHEû53ûSIMILARûDEALSûHAVEû

BEENûûTOû

YEARûMATURITIESv

4HEûHEADLINEûYIELDûSTOODûOUTû

COMPAREDûWITHûLEVELSûTHEû

COMPANYûPAIDûFORûSHORTERû

MATURITIESûINûTHEû53ûDOLLARû

MARKETûAûDAYûBEFOREûWHENûAû53û

DOLLARûTRIPLE

TRANCHERûINCLUDEDûAû

TWO

YEARûTRANCHEûTHATûPRICEDûATû



PENT UP DEMAND

,ASTûWEEKSûDEALSûFOLLOWEDûONû

FROMû-AYûWHICHûWASûTHEûBUSIESTû

MONTHûFORûLONG

ENDûEUROû

CORPORATEûISSUANCEûSINCEû-ARCHû

ûACCORDINGûTOû)&2ûDATA

h&IFTEENûTOû

YEARSûWORKûWELLû

BECAUSEûTHATûPARTûOFûTHEûCURVEû

HASûBEENûUNDERFUNDEDûFORûTWOûTOû

THREEûYEARSû9OUûHAVEûHADûPRETTYû

LOWûRATESûANDûAûLOTûOFûVOLATILITYû

SOûINVESTORSûHAVEûSHIEDûAWAYû

FROMûADDINGûDURATIONvûSAIDûAû

BANKERûAWAYûFROMûTHEûDEALS

"ANKERSûSAIDûPENSIONûANDû

INSURANCEûFUNDSûHAVEûBEENûTHEû

PRIMARYûBUYERSûRATHERûTHANûTHEû

BIGûCREDITûFUNDS

h,ONG

ENDûBUYERSûAREûAûCAPTIVEû

AUDIENCEûANDûAREûALMOSTûFORCEDû

TOûBUYûNOWû4HEYûTHOUGHTûRATESû

WEREûGOINGûUPûSOûTHEYûWEREû

HOLDINGûBACKûBUTûNOWûWITHûTHEû

SELL

OFFûINûRATESûTHEYûHAVEûTOû

BUYvûSAIDûTHEûBANKERûAWAY

2ELATIVELYûDOVISHûSTATEMENTSû

FROMûTHEû&EDERALû2ESERVEûANDû

%#"ûLASTûWEEKûONûINTERESTûRATESû

AREûLIKELYûTOûBOLSTERûDEMAND

7HILEûBANKERSûSAIDûMOREû

DEALSûATûTHEûLONGûENDûCOULDû

COMEûTHEûSUPPLYûWILLûBEûLIMITED

h4HEREûARENTûTHATûMANYû

ISSUERSûWHOûPREFERûGOINGûLONGû

&ORûEXAMPLEûAUTOûNAMESûAREû

MOREûFOCUSEDûONûTHEû

INTERMEDIATEûSPOTû4HEûLONGERû

ENDûISûFORûLOWERûBETAûNAMESûSOû)û

DONTûSEEûITûFORûHIGHER

BETAû

NAMESvûSAIDûAûTHIRDûBANKER

h7HILEûTHEûYIELDSûLOOKû

ATTRACTIVEûFORûINVESTORSûYOUûALSOû

NEEDûTOûlNDûTHEûISSUERSû'IVENû

RATESûTHEûMID

SWAPûLEVELSûAREûSOû

LOWûATûTHEûINTERMEDIATEûLEGûTHATû

MOSTûISSUERSûPREFERûLOWERû

COUPONûPAYMENTSv

Additional reporting by Eleanor

Duncan „

MARGINûPRESSUREûOVERûTHEûBASEû
RATE ûBUTûTHEYûSHOULDûALSOûLOOKû
ATûITûFROMûTHEû;INVESTORS=û
PERSPECTIVEû;OF =ûSEEKINGûANû
ALTERNATIVEûSOLUTIONû3PREADSû
HAVENTûCOMPRESSEDûENOUGHûTOû
WARRANTûTHATûOFFSETv

UNITRANCHE TRENDING
4HEû53û&EDERALû2ESERVEûTOOKûAû
DOVISHûTURNûINû$ECEMBERûANDû
AGAINûINû-ARCH ûINDICATINGûITû
WOULDûKEEPûTHEûBENCHMARKûRATEû
ATûBP
BPûFORûTHEûRESTûOFû
THEûYEAR
7ITHûMANAGERSûSETTINGûUPû
FUNDSûINûTHEûANTICIPATIONûOFû
CONTINUEDûRATEûRISES ûTHEûSUDDENû
CHANGEûMEANSûMANYûHAVEûTOû
LOOKûUPûTHEûRISKûCURVEûTOûHITûTHEû
YIELDûTARGETSûSETûFORûINVESTORS û
especially as unitranche returns
CONTINUEûTOûCOMEûDOWN
h5NITRANCHEûREMAINSû
FASHIONABLE vûSAIDû4ERRYû(ARRIS û
HEADûOFûPORTFOLIOûMANAGEMENT û
GLOBALûPRIVATEûlNANCE ûATû
"ARINGSûh!ûLOTûOFûNEWûMANAGERS û
ASûWELLûASûOLDûMONEY ûHAVEûSETû
HIGHûTARGETûNETûRETURNS ûFORCINGû

THEMûFURTHERûOUTûINûTHEûRISK

ADJUSTEDûRETURNûCURVEv

h4HEûBP

BPû@CERTAINTYû

PREMIUMûTHATûCAMEûWITHû

UNITRANCHEûHASûBEENûERODEDû

GIVENûTHEûINCREASINGûAMOUNTûOFû

PRIVATEûDEBTûCAPITALûAVAILABLEûTOû

FUNDûUNITRANCHEûLOANSûRELATIVEû

TOûISSUERûDEMANDv

&IRMSûHAVEûTRIEDûTOûGETûMOREû

CREATIVEûWITHûTHEIRûSTRUCTURESûTOû

WINûOVERûINVESTORSûANDûADAPTûTOû

THEûCHANGINGûMACROûENVIRONMENT

/THERûSTRATEGIESûINCLUDEû

TAILOR

MADEûMANAGEDûACCOUNTSû

ASûWELLûASûINVESTMENTûPERIODSû

EXTENSIONSûTOûFOURûYEARSûFROMû

THEûTRADITIONALûTHREEûINûORDERûTOû

POSITIONûFORûAûDOWNTURNûTHATû

MAYûBRINGûHIGHERûYIELDINGû

OPPORTUNITIES „

FISHY BUSINESS
BAML ANDûSantander ûALONGSIDEû
Morgan Stanley ûLEDûTHEûõMû
TERMûLOANûBACKINGû0LATINUMSû
BUYOUTûOFû)BERCONSA ûWHICHûWASû
EVENTUALLYûSOLDûTOûAûNUMBERûOFû
INVESTORSûATûBPûOVERû%URIBOR û
ATûûOFûFACEûVALUE

)Nû-AYûTRADITIONALûCREDITûINVESTORSû
WEREûBEINGûSHOWNûTHEûDEALûATûBPû
OVERû%URIBOR ûATûAûû/)$
3OURCESûSAIDûTHATû"!-,ûHASûAû
VERYûCLOSEûRELATIONSHIPûWITHû
0LATINUM ûWHICHûMIGHTûMEANûTHATû
THEûBANKûWILLûAGREEûTOûDOûLOANSûFORû
0LATINUMûTHATûITûWOULDûNOTû
NECESSARILYûDOûWITHûOTHERûSPONSORS
7HILEûSPONSORSûANDûBANKSû
HAVEûPRE
AGREEDûLEVELSûOFûmEXû
THATûVARYûONûAûDEAL
BY
DEALûBASIS û
ITûISûLIKELYûTHATûEVENûINûTHEûEVENTû
OFûVERYûGENEROUSûmEXûTERMS ûTHEû
BANKSûWILLûBEûOUTûOFûTHEûMONEYû
ATûTHEûNEWûLEVELS

h%VENûûATûûWASûMOSTû

probably not the starting point

TOûSELLûTHISûDEALû!TûûTHEûBANKSû

AREûTAKINGûAûHITvûAûLOANû

SYNDICATIONûHEADûSAID

!NûINVESTORûADDEDûhû/UCHv

4HEûLOANûENDEDûUPûSELLINGûTOûAû

NUMBERûOFûFUNDSûINCLUDINGû

DIRECTûLENDERSûWHICHûISûNOTûAû

TRADITIONALûPOOLûOFûINVESTORSûFORû

BANKSûTOûAPPROACHû$IRECTû

LENDINGûFUNDSûAREûHOWEVERû

MOREûOPENûTOûTAKINGûRISKIERû

HIGHER

YIELDINGûPAPER

$IRECTûLENDERSûHAVEûAûLOTûOFû

MONEYûTOûPUTûTOûWORKûANDûATûTHISû

PRICEûTHEûLOANûWASûOVERSUBSCRIBEDû

ANDûFUNDSûWEREûSCALEDûBACKû

PEOPLEûINVOLVEDûSAID

4HEûLOANûPROVEDûAûHARDûSELLû

GIVENûTHEûSECTORûANDûTHEûCOUNTRIESû

)BERCONSAûHASûEXPOSUREûTOû

INCLUDINGû!RGENTINAû.AMIBIAû

ANDû3OUTHû!FRICA

!NOTHERûRISKûISûTHEûUNDERLYINGû

PRICEûVOLATILITYûOFûlSHûTHEû

company has sales in euros to

3PANISHûSUPPLIERSûBUTûCOSTSûINû

DOLLARSûFORûTHEûWORKFORCEû4HEû

lSHINGûRIGHTSûINû!RGENTINAûANDû

Namibia are subject to

GOVERNMENTûRISKûANOTHERû

INVESTORûSAID (^) „
“Even 600 at 98 was
most probably not the
starting point to sell
this deal. At 87 the
banks are taking a hit”
“It has been
disappointing to see
hurdle rates come
down with base rates
going up”