SNCF (Aa2/AA/AA), for example, sold a
€50m 1.28% 100-year green bond through
HSBCû3.#&ûWASûTHEûlRSTûEVERûISSUERûTOûPRINTû
AûGREENûCENTURYûDEALûINû!UGUSTû û
THROUGHûAûõMûûûNOTEû4HESEû
trades are typically bought by insurers and
pension funds.
Other users of the euro MTN market
RECENTLYûINCLUDEû#ANADIANûPROVINCESûBRITISH
COLUMBIA (Aaa/AAA/AAA) and MANITOBA (A+).
The former sold a €150m 0.27% March 2050
NOTEûWHILEûTHEûLATTERûCLOSEDûAûõMûû
March 2035, both jointly placed by Bank of
Nova Scotia and NordLB.
French state-owned transport operator
REGIE AUTONOME DES TRANSPORTS PARISIENS (Aa2/
A2) also issued a 30-year MTN, raising
õMûTHROUGHûAûû-ARCHûû
through HSBC. BRUXELLES CAPITALE (AA)
VENTUREDûEVENûFURTHERûALONGûTHEûCURVEûWITHû
a €53m 0.444% March 2057.
“There are certainly opportunities out
there,” said a banker away from the trades.
“There is certainly an argument to be made
that the yield for some good names in
longer-dated trades looks appealing.”
4HEREûISûSTILLûDEMANDûFORûVERYûSELECTû
corporates too with state-owned DEUTSCHE
BAHN (Aa1/AA/AA) inking a €150m March
2032 note through Commerzbank that was
due to settle at the end of last week.
(OWEVER ûBANKERSûAREûSTARTINGûTOûSEEûAûFALLû
in demand for MTNs as the illiquid nature of
THEûPRODUCTûMAKESûITûLESSûATTRACTIVEûCOMPAREDû
with a benchmark public transaction.
Although some longer-dated trades still
PROVIDEûATTRACTIVEûPRICINGûFORûBOTHûISSUERSû
ANDûINVESTORS ûDEMANDûFORûSHORTERûTRADESûISû
limited and not all borrowers are open to
longer maturities.
h)ûWOULDûEXPECTûACTIVITYûTOûDROPûANDû
remain low as long as the market stress
continues,” said a second source. “With the
current market conditions, there is no
opportunistic trade and there will be a
PREMIUMûTOû;ENCOURAGEûINVESTORS=ûTOûBUYûANû
illiquid piece of paper.”STERLING
YORKSHIRE WATER BRINGS BONDS
UP TO DATEYORKSHIRE WATER is seeking bondholder
permission to adjust the terms of 17 of its
bonds and bring them into line with Ofwat’s
DElNITIONS ûASûAûPRICEûARGUMENTûRUMBLESûONû
with the regulator.
4HEû7ATERû3ERVICESû2EGULATIONû!UTHORITYû
/FWAT ûCOMPLETEDûITSûlNALûDETERMINATIONûOFû
price controls for Yorkshire Water in
$ECEMBERû ûCOVERINGûTHEûREGULATORYû
period of 2020 to 2025, and introduced a
NEWûLINEûITEMûCALLEDûhREVENUEûRE
PROlLINGvYorkshire Water said it was unaware of
THEûPRESENTATIONALûCHANGEûUNTILûTHEûlNALû
determination was published. Although the
concept is not new, it was treated differently
INûTHEûPREVIOUSûPERIODICûREVIEW
Yorkshire Water therefore has to update
THEû#ONFORMEDû)NTERESTû#OVERû2ATIOSû4HEû
COMPANYûSAYSûTHATûWHILEûTHEûREVENUEûRE
PROlLINGûADJUSTMENTûBYû/FWATûWILLûHAVEûAû
small impact on annual gearing, Yorkshire
Water is not proposing any amendments to
THEûlNANCIALûCOVENANTSûTHATûTESTû
INDEBTEDNESSûTOûREGULATORYûCAPITALûVALUEû
(RCV).
4HEûCONSENTûSOLICITATIONûENCOMPASSESûû
outstanding sterling-denominated bonds
and an Australian dollar note.
Yorkshire Water is offering an instruction
fee of 5bp of principal amount outstanding
of the bonds.
The instruction fee deadline falls on April
7 and the results of the proposal will be
announced on April 20.
Lloyds Bank and NatWest Markets are the
solicitation agents.PRICE DISPUTE
Ofwat proposed in December a £50 cut in
AVERAGEûBILLS ûAûaBNûINVESTMENTûINûTHEûSECTORû
and a cap on utilities’ shareholder returns.
Yorkshire Water, as well as with
Northumbrian Water, Anglian Water and
"RISTOLû7ATER ûHASûSOUGHTûAûREVIEWûOFûTHEû
proposals.
Moody’s downgraded Yorkshire Water’s
Class A notes by one notch to Baa2 on March
ûWITHûAûNEGATIVEûOUTLOOK ûINûRESPONSEûTOû
YWS announcing that it would not accept
THEûREVENUEûLIMITSûSETûBYû/FWAT
“The downgrade of the Class A notes
REmECTSûTHEûPERSISTENTLYûHIGHûANDûGROWINGû
mark-to-market (MTM) loss on Yorkshire
7ATERSûDERIVATIVEûPORTFOLIO ûWHICHûWASû
AROUNDûaBNûûOFûREGULATORYûCAPITALû
VALUE ûASûOFû*ANUARYû vûWROTEû-OODYS
“In a default scenario, if creditors demand
payment acceleration, the company would
be required to make a termination payment
based on swap counterparties’ assessment of
their total losses, which is likely to be close
to the MTM at that time. This payment
would rank ahead of principal and interest
ONûSENIORûDEBTûANDûWOULD ûATûCURRENTûLEVELS û
MATERIALLYûREDUCEûSENIORûDEBTûRECOVERYv
The ratings agency said that Yorkshire
Water’s intercreditor arrangements contain
PROVISIONSûINTENDEDûTOûREDUCEûTHEûLIKELIHOODû
OFûANûEVENTûOFûDEFAULTûAND ûIFûONEûWEREûTOû
occur, to allow resolution prior to
enforcement action.
Yorkshire Water’s MTM loss is largely
associated with RPI-linked swaps dating
from the company’s acquisition in 2008,
Moody’s says, many of which extend to the
mid-2040s or beyond.h4HEû-4-ûREmECTSûANûINCREASEûINûTHEû
PRESENTûVALUEûOFûFUTUREûPAYMENTSûBECAUSEû
REALûINTERESTûRATESûHAVEûFALLEN ûASûWELLûASû
ACCRETIONûPAYMENTSûTHATûHAVEûACCRUEDûTOû
date and are included in Moody’s calculation
of net debt,” wrote Moody’s.
“In addition, Yorkshire Water has entered
into swap restructurings under which it will
RECEIVEûOVERûaMûFROMûSWAPû
COUNTERPARTIESûOVERû;THEûNEXTûTWOûREGULATORYû
periods], which will result in increases in
THEû-4-ûREmECTINGûPROBABLEûFUTUREû
OUTmOWSv
Moody’s expects that Yorkshire Water’s
credit quality will weaken from the start of
the upcoming regulatory period. An
increase in the probability of default, albeit
FROMûAûVERYûLOWûBASE ûALSOûINCREASESûTHEû
RELEVANCEûOFûEXPECTEDûRECOVERYûRATES
Yorkshire Water’s senior secured debt is
rated A– by S&P and A by Fitch, with
NEGATIVEûOUTLOOKSûATûBOTHûAGENCIES
Ofwat is referring its determination to the
Competition and Markets Authority, which
will form its own conclusion on the price
controls. Moody’s expects the
redetermination to take at least six months
and that timeframe may be extended by a
further six months.FIG
US DOLLARS
BANKS PAY UP HANDSOMELY AS THEY TRY
TO KEEP MARKET OPENFinancial borrowers stormed the high-grade
market on Thursday, looking to take size
and access new pools of liquidity, but they
RECEIVEDûAûSOURûREACTIONûFROMûINVESTORSûASû
only one of the four issuers tightened from
initial price talk.
JP MORGAN, CITIGROUP and MORGAN STANLEY
each added new bank supply to the market,
alongside one of the highest quality
insurers, METLIFE.
Issuers that came to market on Tuesday
had to concede large concessions, but that
had only increased by Thursday, with
AVERAGEûCREDITûSPREADSûHAVINGûWIDENEDûATûAû
NEARLYûUNPRECEDENTEDûVELOCITYûTOûAûHIGHûOFû
BPûOVERû4REASURIES ûACCORDINGûTOû)#%û
BofA data.
At the same time, Treasury rates were on
the rise, with the yield on the 30-year
JUMPINGûTOûûFROMûûONû-ARCHû
Banks were therefore prioritising size and
EFlCIENCYûRATHERûTHANûSWEATINGûOVERûTHEû
spread, buyside and sellside participants
said.32 International Financing Review March 21 20206 IFR Bonds 2325 p 23 - 45 .indd 32 20 / 03 / 2020 19 : 59 : 40