International Financing Review April 4 2020 3For daily news stories
@ visit http://www.ifre.comOracle’s splashy US$20bn 06 Bonfire of the dividends 08 Coffee spill hits ECM 10
change-of-control language to
the covenants.
The bonds were trading some
70bp–85bp tighter in the
aftermarket on Tuesday,
according to MarketAxess.
“The Sysco deal shows that
the market has evolved and
broadened to the point where
there is access now for these
sorts of names,” the lead banker
said.SIMILAR STORY
It was a similar story in Europe,
although issuance from trickier
SECTORSûWASûNOTûCONlNEDûTOû
Triple B rated corporates.
Issuers came from the auto
sector (VOLKSWAGEN, DAIMLER), oil
(TOTAL, SHELL, BP, OMV), air travel
(AIRBUS, ROYAL SCHIPHOL) and real
estate (VONOVIA, GRAND CITY,
UNIBAIL-RODAMCO-WESTFIELD).
Such issuers, together with
some more defensive credits,
such as utility E.ON and telecoms
ORANGE, helped swell euro
issuance volumes to €39.55bn,
easily beating the previous
weekly record of €24.05bn set in
THEûlRSTûWEEKûOFû3EPTEMBERû
This came despite €140bn of
debt within the investment-
grade sector being downgraded
in March, according to Bank of
America calculations. Few
industries were spared.
“We are in a very strange
environment. There is a high
degree of consensus of what
people want to do, but they
can’t do it. They would like to
buy defensive names which
have sold off but no one will sell
at a reasonable price,” said
!NDREWû*ACKSON ûHEADûOFûlXEDû
income at the international
business of Federated Hermes.
“Everyone would like to sell
what they don’t like, but there
are just no buyers. If a new issue
comes at a meaningful
premium and it’s a reasonably
high-quality name, then you are
going to jump at that.”
That proved to the case for
Total, for example, whose €3bn
dual-tranche deal saw demand
top €13.5bn. The deal was
upsized from €2.5bn.“The company has one of the
best balance sheets in the sector
to deal with the current price
volatility,” said Christian
Hantel, senior portfolio
manager for global corporate
bonds at Vontobel.
The slump in oil prices
has forced Total to reassess
its business strategy,
including cutting costs and
suspending its share buyback
programme.
Leads began with concessions
of around 70bp but by the end
were able snip 40bp off. The
company, rated A3/A–, has
negative outlooks from Moody’s
and S&P hanging over it, but
investors appear comfortable
with the risk.
Dutch airport Royal Schiphol
is also on negative outlook with
the agencies for its A1/A+
ratings but was still able to
upsize an expected €500m nine-
year green bond to €750m.
For investors the repricing of
these still relatively high-rated
credits is the big draw.
h$ElNITIVELYûTHEûTRIGGERûFORû
investing in those names, Total
and Royal Schiphol, is the
spread concession compared
with both the secondary market
and the historical premium for
these high-rated companies,”
said Ismael Lecanu, senior credit
portfolio manager at AXA
Investment Managers.MORE CHALLENGING
The real estate deals proved a
bit more of a challenge. Unlike
other sectors, landlords aren’t
being given government
assistance.GRAND CITY, a Baa1/BBB+ rated
residential REIT with properties
in Germany, for example,
had to sell a €600m four-year
bond off a book of €1.1bn,
leaving the deal less than
twice covered.
Still, some investors feel far
more comfortable with
residential real estate than retail
properties.
“Retail is particularly scary,”
said an investor. “I’m doubting
there’s much of a rebound
even once we are out of
lockdown – the recession will
kick in then.”And yet Unibail, which owns
shopping centres, raised €1.4bn
in debt split between a €600m
lVE
YEARûBONDûANDûAûõMû
year note.
Investors placed €3.1bn in
orders thanks to a premium
seen at 80bp on both tranches at
initial price thoughts and at
50bp–55bp by the end.
Unibail, rated A3/A– (both
with negative outlook), said
that it had €10.2bn in cash
on hand and undrawn credit
lines.
Clearly the presence of the
ECB in the primary market
is adding a big degree of
comfort, though it also
keeping other investors on
their toes.
“The worst-case scenario is
that you are underweight or –
worse – short something the
ECB is buying,” said Jackson.
“Spreads can tighten in very
rapidly if the ECB changes what
it is buying and that can be very
painful.”
But the ECB isn’t alone in
supporting books. One of the
consequences of the
coronavirus-inspired sell-off is
that it has brought other
investors into the fold.
Absolute return investors,
for example, are returning to
the asset class after being
priced out when yields were
getting crushed to historical
lows.
“There are lots of absolute
return investors. They may not
be the longest-term investors,
but they’re helping
oversubscription,” said a senior
banker.
Another group dipping into
the investment-grade market is
those bank treasuries that
traditionally buy peripheral
eurozone sovereign debt. Some
HIGH
YIELDûFUNDSûWITHûmEXIBLEû
mandates are also buying.
These buyers are
complementing the insurers
and asset managers that are
attracted by the relatively
higher yields on offer.
Additional reporting by Robert
Hogg and Eleanor Duncan. 050100150200250300May
2015Sep
2019Jan
2017May
2016Mar
2020REMARKABLE RECORD
TOP FIVE US HIGH-GRADE ISSUANCE MONTHSSource: RefinitivUS$bn“We are in a very
strange environment.
There is a high degree
of consensus of what
people want to do,
but they can’t do it.
They would like to
buy defensive names
which have sold off but
no one will sell at a
reasonable price”4 IFR Top news 2327 .p 2 - 12 .indd 3 03 / 04 / 2020 19 : 29 : 26