40 International Financing Review April 4 2020EUROS
CORPORATES BUILD CASH BUFFERS“Load up on liquidity while you can” is the
mantra corporate borrowers are living by,
with the wave of deals last week
underscoring the uncertainty with which
issuers are viewing the future.The number of investment-grade euro
tranches to hit screens signalled that
borrowers are rushing to raise cash to secure
THEIRûlNANCESûSHOULDûECONOMICûCONDITIONSû
deteriorate and liquidity become harder to
access.
“Issuers have experience from recent
MEMORYûWHEREûlNANCINGûWASNTûPOSSIBLEû
and certainly at much higher rates [like in
THEûlNANCIALûCRISIS= vûSAIDûAûSYNDICATEûBANKERûh3OûISSUERSûAREûMINDFULûTOûLOADûUPûONû
liquidity as the opportunity has presented
itself.”
LVMHû!! ûWHICHûANNOUNCEDûANû!PRILû
2025 benchmark on Wednesday, is one
corporate expecting its sales to decline,
GUIDINGûTOûAûYEAR
ON
YEARûDROPûOFûnû
FORûTHEûlRSTûQUARTERûOFû
However, the weaker outlook proved no
BARRIERûFORûINVESTORSûWHOûAREûlNDINGûTHEû
attractive spreads that high-quality credits
are issuing at hard to resist. With a book of
about €5.9bn at launch, the issuer paid no
CONCESSIONûONûITSûõBNûDEAL ûACCORDINGûTOû
LEADSû4HEûlNALûSPREADûWASûSWAPSûPLUSûBP
“It’s a quality credit and when they come
at these levels it’s incredibly attractive,” said
a lead banker.
“From an investor perspective, I think
some are reasoning that coronavirus is a
short-term issue and this is an opportunity
to lock in longer-term attractive spreads,”
said a banker away from the deal.
LVMH will use the funding, at least in
PART ûTOûPRE
lNANCEûITSûACQUISITIONûOFû4IFFANYû
û#O
Highlighting the widening of spreads,
PERNOD RICARDû"AA""" ûONû7EDNESDAYû
ISSUEDûõMûOFû!PRILûSûATûBP ûWHILEû
TOWARDSûTHEûENDûOFû ûTHEûDRINKSû
manufacturer sold a €500m 0.875% October
ûOFFERINGûATûAûSPREADûOFûJUSTûBP
The proceeds from the new issue, which
also included €750m of April 2025s
LAUNCHEDûATûBP ûWILLûBEûUSEDûTOûRElNANCEû
bank debt facilities, “notably one secured
with a joint lead manager”, according to the
deal announcement.
Higher-rated issuers from defensive
sectors were able to squeeze concessions.
“Trades have shown that actually the
market is open to almost everyone, at a
price, but I think that preference for quality
or something that is considered a safe sector
ISûSTILLûTHERE ûANDûTHATûISûREmECTEDûINûWHATû
different issuers end up paying,” said a
fourth banker.
Utility E.ON (Baa2/BBB), for example, was
able to land a €750m October 2025 green
NOTEûISSUEûATûBPûOVERûSWAPSûFORûONLYûAû
5bp premium. The deal began with a
concession of about 55bp but a book that
reached more than €7.2bn at the tight end
of guidance gave leads leeway on the price.
“We believe that the euro utility sector is
one of the most resilient sectors in this crisis
and that E.ON, with its high percentage of
network Ebitda, is relatively well placed,”
SAIDû#REDIT3IGHTS
Demand for quality credits also allowed
ORANGEû"AA""" """ ûTHEûlRSTû%UROPEANû
telecoms company to test the market since
the sell-off, to cut its concessions.
At IPTs, it was paying up around 60bp,
MOREûINûLINEûWITHûTHEûCONCESSIONSûATûlNALûQuestions linger but real
estate market reopens
CORPORATES Tough times lie ahead but three companies prove market accessInvestors were back buying property owners in
the primary market last week despite question
marks about how badly real estate will be
affected by prolonged lockdowns.
With several countries enforcing lockdowns
because of the coronavirus and fears growing
about the depth of a likely global economic
recession, tougher times lie ahead for the
real estate sector than most. That has been
compounded by the fact that landlords are not
getting government assistance.
Despite this, three issuers were able to price
deals last week, showing investors have not lost
faith in the sector.
VONOVIA opened books on four and 10-year
notes with a 75bp premium, according to a lead.
The German residential real estate company
carries BBB+/A– (stable) ratings from S&P and
Scope, respectively.
“It is one of the most defensive REITs out
there, so it looks attractive,” said an investor.
“We see the residential sector as one of the
most resilient within the real estate subsector
in the current environment,” wrote CreditSights
analysts.
Demand allowed leads to cut pricing by 40bp
from start to finish on both tranches. The €500m
no-grow four-year ended at 195bp over swaps,
while the €500m no-grow 10-year landed at plus
240bp. Proceeds will refinance a €750m 1.625%
December 2020 bond issue, among other things.
Two days later, two more real estate
companies stepped up to sell debt but both
approached the market with caution.
France’s UNIBAIL-RODAMCO-WESTFIELD, which
owns shopping centres, raised €1.4bn in debt split
between a €600m five-year that landed at 240bp
over swaps and a €800m 10-year at plus 280bp.
Investors placed €3.1bn in orders, thanks
in part to a premium seen at 80bp on both
tranches at IPTs. Pricing was tightened by 25bp
on the 2025s and 30bp on the 2030s.
In a sign of how much the market has moved,
Unibail sold a 30-year bond issue in June 2019 ata spread of plus 110bp and a yield of 1.83%.
Since then, shopping centres around the
world have been shuttered as part of the effort to
prevent the spread of the novel coronavirus.
Unibail, rated A3/A– by Moody’s/S&P (both
negative outlook), said in March that it had
€10.2bn in cash on hand and undrawn credit
lines, which provided it with the liquidity needed
to cover all expected funding needs even under
an extreme “stress test” scenario.
GRAND CITY, a residential REIT with properties
in Germany, sold a €600m four-year bond at
plus 235bp. The company pulled in a book of
€1.1bn, leaving the deal less than twice covered.
Leads were able to tighten the spread from
IPTs of plus 245bp–250bp, with the deal
launching in line with guidance.
Still, some investors feel far more comfortable
with residential real estate than retail.
“Retail is particularly scary,” said a second
investor. “I’m doubting there’s much of a rebound
even once we are out of lockdown – the recession
will kick in then.”
Investors saw Grand City (Baa1/BBB+,
Moody’s/S&P, both stable) as offering around a
40bp premium over Vonovia’s bonds.
“Notwithstanding Grand City’s exposure
to Berlin and potential concerns about rent
restrictions across Berlin, real estate is a relative
game at the moment,” said the first investor.
“From a REIT standpoint, the preferred asset
exposure is residential at the top, then logistics,
offices, then at the bottom you have hotels – and
then retail.”
Both Vonovia and Grand City plumped for
four-year bonds – a part of the curve that has
been relatively neglected in the recent borrowing
frenzy.
The performance of short-dated paper has
been lagging longer duration in investment
grade, as insurance companies and pension
funds are better placed to ride out the market’s
troubles.
Eleanor Duncan6 IFR Bonds 2327 p 25 - 65 .indd 40 03 / 04 / 2020 20 : 28 : 59