FRONT STORY EURO IG CORPORATESCorporates run riot and smash record
Weekly funding record set as issuers strengthen balance sheets
Broader variety of sectors and tenors on offer
Europe’s corporates went on an unprecedented
borrowing spree last week, breaking the
weekly issuance record in the process.
More than €39.5bn of bonds were priced
in the euro investment-grade market, easily
surpassing the previous record of €24.05bn
SETûINûTHEûlRSTûWEEKûOFû3EPTEMBERû
The euro market is following the lead of
THEû53ûHIGH
GRADEûMARKET ûWHICHûHASûSEENû
TWOûCONSECUTIVEûWEEKSûOFû53BN
PLUSû
supply as issuance records are being
smashed on both sides of the Atlantic.
Normally, this volume of deals would be
associated with a bull market, but the
SUPPLYûOVERûTHEûPASTûCOUPLEûOFûWEEKSûREmECTSû
more the fact that corporates are building
cash buffers while they can before the
market takes another turn for the worse
because of the novel coronavirus.
“For a lot of corporates, it is a question of
making sure they can weather whatever the
next few months bring,” said Peter Charles,
head of syndicate, EMEA, at Citigroup.
The increased presence of the ECB in the
market has given issuers a high degree of
CONlDENCEûTHATûTHEIRûDEALûWILLûGETûDONE ûALTHOUGHû
many are still paying relatively big concessions.
Deals that are not ECB-eligible are
sometimes a bit more of a challenge. But
investors have absorbed everything that has
been thrown at them.
“They’re very well engaged on the
investor side. Timelines are being stretched
marginally but single-day execution is quite
straightforward,” said Charles. “And the
breadth of investor involvement is
extremely good. This is not 20-odd guys
doing club deals.”
The repricing of the market has encouraged
a number of different types of investors to
participate, including absolute return funds,
HIGH
YIELDûACCOUNTSûWITHûmEXIBLEûMANDATESû
and bank treasuries more used to buying
peripheral eurozone sovereign debt.
But real money investors - insurers and
asset managers - continue to lead the way on
transactions. What was encouraging last
week was that issuers started to test interest
across the maturity curve.
Investors have shown keen demand for
longer-dated paper in recent weeks to lock
in the high spreads being offered by
corporate borrowers, leaving the short end
undersupplied.The short end of curves had been
dislocated more by the sell-off, as investors
were desperate to get their hands on cash.
But not all issuers have wanted to respond
to increased interest in longer assets.
“Issuers are aware of the better bid in the
long end but are not ready to pay up at this
stage and hence go for a shorter maturity,”
said a lead on one of Thursday’s deal.
Bankers are now seeing a push from the
ECB to remedy the pressure on shorter-
dated funding.
“We’ve seen central banks act on the
short end of the curve recently to ease the
stress a bit,” said a syndicate banker.
One issuer to test demand for shorter
maturities was HEIDELBERGCEMENT (Baa3/BBB-/
"""
ûPRINTINGûANû/CTOBERûûTOûRElNANCEû
its €750m 7.50% April 2020.
However, with curves steepening and
buyers seeing more value at the long end,
orders for the October 2024 note were
relatively muted. Books peaked above
õBNûBUTûCLOSEDûATûõBN ûWITHûTHEûISSUERû
taking €650m at a spread of 285bp.
Additionally the company’s ratings and
sector likely weighed on investor interest.
“Cyclical and BBB-; not the most
straightforward one,” said the second
banker. “But, in this market, as long as you
pay the appropriate NIP, deals can be done.”
The new issue premium at initial
guidance was around 75bp-80bp. By launch
it was 50bp-55bp.
In a similar vein, BRITISH AMERICAN TOBACCO
(Baa2/BBB+) saw demand for its October 2024s
and April 2028s skewed towards the longertranche, but leads were still able to cut the
spread by 35bp on each tranche to land at
275bp and 335bp, respectively, each at €850m.
Although shorter-dated bonds are
receiving more support in the primary
market, deals of less than four years are still
a relative rarity, and the last corporate euro
trade to feature a two-year term came in
February.
“[We’ve received] quite a few comments
from investors saying that, three-years and
inside, nobody really knows the real
secondary levels, and it is the part of the
market that has been struggling the most,”
SAIDûTHEûlRSTûBANKER
3OMEûINVESTORSûSIMPLYûPREFERûTOûSTICKûTOû
the longish end of the curve.
“The credit market remains dislocated, curves
AREûQUITEûmAT ûBUTûONûAûSIMPLEûOFFERDEMANDû
analysis, I would advocate for medium or long-
dated issuances as the demand is there,” said
Ismael Lecanu, senior credit portfolio manager
at AXA Investment Managers.
Another notable development last week
was the greater variety of issuers in the
market, including from more vulnerable
sectors. All got done - even deals for the likes
of German residential property owner GRAND
CITY and French shopping centre owner
UNIBAIL-RODAMCO-WESTFIELD.
3OMEûDEALSûTHATûPROBABLYûWEREûNOTûEVENû
possible a couple of weeks ago were blowouts.
AIRBUS, for example, received more than
õBNûOFûORDERSûFORûITSûõBNûTRIPLE
trancher.
The air travel industry is one of the most
vulnerable to the developing crisis, with a
number of airlines struggling with their
businesses.
But the planemaker cast aside any doubts
about its appeal to investors.
!TULû3ODHI ûGLOBALûHEADûOFûDEBTûCAPITALû
markets at Credit Agricole, one of the global
coordinators, said that the market volatility
is a short-term shock that Airbus should be
ABLEûTOûNAVIGATE ûWITHûPREMIUMSûREmECTINGû
how pricing has changed in recent weeks.
“Airbus is a strongly rated issuer with a
strong market position and strong
UNDERLYINGûBUSINESSûMODEL vûSAIDû3ODHIû
“They are pragmatic and are being
realistic. This is a top-tier issuer and you can
see the market buys the story.
Sudip Roy, Ed Clark, Robert Hogg, Alex ChambersInternational Financing Review April 4 2020 25BONDS
SSAR 29 Corporates 38 FIG 44 Covered Bonds 45 High-Yield 46 Structured Finance 48€bnA NEW BAR
FIVE BUSIEST EURO IG CORPORATE
ISSUANCE WEEKSSource: Refinitiv051015202530354022 Mar 20 -
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