2020-04-04 IFR Magazine

International Financing Review April 4 2020 41

BONDS CORPORATES

pricing on recent deals, with a seven-year

TRANCHEûOFFERINGûAûBITûMOREûJUICEûTHANûAû

year.

!NûEVENLYûSPLITûBOOKûOFûMOREûTHANûõBNû

at guidance for its July 2027s and April 2032s

meant the borrower could set the size of

each tranche at €750m. With demand

EVENTUALLYûEXCEEDINGûõBNûLEADSûWEREûABLEû

TOûSETûSPREADSûATûBPûANDûBPûFORûlNALû

CONCESSIONSûOFûABOUTûBP

GREEN TINGE

Green bond issuance strategies are also

being used by corporate borrowers looking

to raise cash, hoping that a green label will

broaden demand and secure a successful

execution.

“One of the advantages of a green bond is

INDEEDûINVESTORûDIVERSIlCATIONvûSAIDûAû$#-û

banker.

h3OûSOMEûISSUERSûUSEûTHEIRû@AVAILABLEû

green assets powder’ to help secure

execution in this volatile market

environment.”

One issuer to tap the market for green

lNANCINGûONû7EDNESDAYûWASûIBERDROLA

"AA"""!n   û4HEû3PANISHûELECTRICITYû

utility mustered a healthy book of more

than €8.75bn for a €750m June 2025 issue

PRICEDûATûAûSPREADûOFûBP

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area saw the trade land with a concession of

about 5bp. Bankers said the moves had been

powered by the strength of the credit, the

sector and the additional demand generated

by having a green label.

Dutch airport ROYAL SCHIPHOL also issued

green bonds. It put out IPTs at swaps plus

250bp area for an expected €500m nine-

year.

3CHIPHOLû!! ûRAMPEDûTHEûDEALûUPûTOû

€750m off books of €3.75bn and landed the

TRADEûATûBP

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.OVEMBERûûTRADEûINû/CTOBERû

VW AND DAIMLER PAY UP FOR ACCESS

Two of Europe’s biggest carmakers were

back in the market last week, adopting

contrasting funding strategies, but both had

to pay up to convince investors.

6OLKSWAGENûWASûlRSTûOUTûONû-ONDAYûINû

the biggest test yet of the state of the

markets.

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TRANCHEû

OFFERINGûFROMû67SûlNANCIALûSERVICESûARMû

got a mixed response, with some bankers

SAYINGûTHEûlNALûBOOKûSIZEûOFûõBNûFELLû

short of what they considered a good

outcome, even though the deal began with

an 80bp–90bp premium.

“I think it needs to be a €6bn–€7bn book

to be judged a good deal,” said the senior

banker during the execution process.

“What we don’t need is a big new-issue

premium at the start but then for it to limp

over the line.”

Another senior banker thought the deal

was not attractive enough for many

investors despite the starting point and a

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He added that its ineligibility for the ECB’s

bond-buying programme – the issuer was

VOLKSWAGEN FINANCIAL SERVICES – made it an

even tougher sell.

“I just don’t think it’s cheap enough in

this market, and if the ECB isn’t there, it has

an impact. It shows you how fragile the

market is.”

(OWEVERû#REDIT3IGHTSûANALYSTSûSAIDûTHEû

premium was less important than VW

raising money to dispel any liquidity

concerns.

“We view it as prudent that VW takes

advantage to maintain access to the capital

markets, shore up liquidity as well as

manage down the CP and other near-term

exposures – even if VW must pay up to do

it,” they wrote.

Volkswagen (A3/BBB+) opened books on

2023s, 2025s and 2028s at, respectively, the

BPûAREAûOVERûSWAPSûPLUSûPûANDûPLUSû

390bp.

The response from investors enabled

leads to price the €650m 2023s and €700m

2025s 25bp inside IPTs, while the €800m

2028s were revised by 35bp.

67û&3ûWASûBACKûINûTHEûMARKETûONû

Thursday, this time in sterling.

“The sterling market is an interesting

choice; there is less liquidity than you would

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other hand, if you offer the right spread you

can do your trade.”

Volkswagen brought in more than £700m

of orders. The spread at IPTs on the October

2025 was the 445bp area over Gilts, but with

enough demand leads landed it at 425bp,

also increasing the size to £350m from an

expected £300m.

In an indication of how markets have

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STERLINGûFOUR

YEARûBONDûINû&EBRUARYûATûBPû

OVERû'ILTSûANDûAûlVE

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PLUSûBP

Like many carmakers, VW is feeling the

pressure of the coronavirus crisis. On March

27, Moody’s put its A3 rating on review for a

downgrade given likely reduced consumer

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negative outlook too.

On Wednesday, DAIMLER priced an upsized

ECB-eligible bond, though a chunky

premium was still required.

h2ECENTûTRADESûSHOWûTHEûIMPORTANCEûOFû

the ECB in primary,” said a lead.

“It’s about perception. You don’t

necessarily need an order from them to get a

trade done, but you do need it for a blowout

trade because it gives other investors the

CONlDENCEûTOûCOMEûINv

The central bank is putting orders in

equal to 40% of an announced tranche size,

according to some sources.

Daimler’s A3/BBB+/A– April 2025 bond

drew in a book of over €3.4bn at guidance,

with the demand allowing the borrower to

UPSIZEûTOûõBNûFROMûTHEûPREVIOUSLYû

EXPECTEDûõBN

Given the mixed response to VW’s deal, it

was not clear how investors would react to a

Daimler new issue.

However, by offering a healthy premium

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THEûBPûONû67SûlVE

YEARûTRANCHEûANDû

targeting just a single maturity, Daimler

managed to generate considerable interest.

The deal was priced at 295bp over swaps

from IPTs of 325bp–335bp, with Daimler

paying a concession of about 65bp.

Bankers said a single tranche

concentrated interest, although some

thought that without a longer leg it may

have missed out on some demand from

insurers.

As with VW, Daimler’s bond followed a

DOWNGRADEûFROMûAûRATINGSûAGENCYû30Sû

recently took the decision to take the issuer

down one notch to BBB+, with a negative

outlook, citing an expected decline in

revenues. The Moody’s A3 rating is on

review for downgrade.

Carmakers generally are under huge

scrutiny, with analysts expecting the sector

to be at the centre of ratings downgrades,

with many vulnerable to fallen-angel status.

“Note that Triple B rated euro debt in the

auto segment accounts for €92.8bn alone,

which is almost 30% of the entire high-yield

universe,” said Bank of American analysts

last week.

OIL COMPANIES GET INVESTOR LOVE

Oil companies were out in force in the

investment-grade euro corporate market

LASTûWEEKûRAISINGûõBNûDESPITEûTURBULENCEû

from a price war shrouding the industry.

TOTAL, SHELL, BP and OMV attracted

combined books in excess of €34.5bn as

investors took advantage of the widening of

spreads in the oil sector.

Total kicked issuance off on Wednesday –

the

other three followed on Thursday – giving

THEûSECTORûCONlDENCEûAFTERûGETTINGûõBNû

of orders for its €3bn dual-trancher.

During the execution process it had said

to expect a €2.5bn size.

h4OTALûHASûANûINCREDIBLYûDIVERSIlEDû

business, by geography, upstream,

DOWNSTREAMûANDûITSûlNANCIALûPROlLEûISû

incredibly robust, so it is not surprising to

6 IFR Bonds 2327 p 25 - 65 .indd 41 03 / 04 / 2020 20 : 28 : 59