IFR 03.21.2020

NON-CORE CURRENCIES

BLUESTEP PREPARES TO ENTER SWEDISH

COVERED MARKET

Swedish specialist mortgage lender BLUESTEP

ISûPREPARINGûTOûENTERûTHEûCOVEREDûBONDû

MARKETûBRINGINGûAûNEWûPROlLEûOFûHIGHERû

RISKûCOVEREDSûTOûAûMARKETûOTHERWISEû

dominated by Triple A securities.

Bluestep, a lender of non-conforming

MORTGAGESûRECEIVEDûTHEûAPPROVALûOFûTHEû

3WEDISHû&INANCIALû3UPERVISORYû!UTHORITYûTOû

ISSUEûCOVEREDûBONDSûLASTûYEARûANDûWASû

ASSIGNEDûAûPROVISIONALû!AûCOVEREDûBONDû

rating by Moody’s earlier this month.

,OUISEû"ERGSTROMûHEADûOFûINVESTORû

relations at Bluestep, told IFR that the

LENDERSûlRSTûISSUEûWILLûCOMEûINû3WEDISHû

kronor but said the issuer has an interest in

raising euro and Norwegian krone funding

down the line.

4HEûTIMINGûOFûTHEûlRSTûDEALûREMAINSû

subject to market conditions but Bluestep

aims to become a regular issuer in the

coming years, Bergstrom said.

“As it would be our inaugural transaction,

WEûlNDûITûIMPORTANTûTHATûTHEûISSUEûISûWELLû

RECEIVEDûBYûTHEûINVESTORûCOLLECTIVEvûSHEû

said.

“The timing of any issuance is naturally

dependent on market conditions, especially

SINCEûMARKETSûHAVEûBEENûVERYûVOLATILEû

lately.”

"LUESTEPSû!AûCOVEREDûBONDûRATINGû

CONTRASTSûWITHûTHEû4RIPLEû!ûCOVEREDûRATINGSû

OFûOTHERû3WEDISHûISSUERSûREmECTINGûTHATûITSû

deals will be backed by non-conforming

residential mortgage loans, including,

Moody’s noted, loans to borrowers with

credit remarks and debt consolidation loans.

-OODYSûASSIGNEDû"LUESTEPSûCOVERûPOOLûAû

COLLATERALûSCOREûOFûûWELLûABOVEûTHEû

AVERAGEûFORû3WEDISHûCOVEREDSû4HEûCOLLATERALû

score measures losses resulting directly

FROMûCOVERûPOOLûASSETSûCREDITûQUALITY

Market participants expect Bluestep’s

deals to accordingly offer a pick-up

compared with more established, better-

rated comparables.

Bergstrom said Bluestep’s successful

senior issuance – it has sold SKr2bn

53M    ûOFûSENIORûPREFERREDûBONDSûSINCEû

establishing an MTN programme in late

2018 – showed that there is interest in an

ISSUERûWITHû"LUESTEPSûUNCONVENTIONALû

PROlLE

“Being a specialised mortgage lender, we

turn to customers that are increasingly

UNDERSERVEDûBYûTRADITIONALûBANKSûMAINLYû

due to more streamlined processes within

said banks,” she said.

“Bluestep commits more time and

resources to each customer to assess the

RISKSû(ISTORICALLYûTHEûAPPROACHûHASûPROVENû

SUCCESSFULûWITHûGRADUALûANDûPROlTABLEû

growth coupled with limited credit losses.”

HIGH-YIELD

UNITED STATES

US HIGH-YIELD SPREADS WIDEN TO

CYCLICAL HIGHS AS FEARS DEEPEN

!VERAGEûHIGH

YIELDûBONDûSPREADSûTOUCHEDûAû

post-crisis high on Wednesday, surpassing

PREVIOUSûPEAKSûSEENûINûûANDûûWITHû

THEûVIRUSûPANDEMICûPUTTINGûPRESSUREûONû

LEVERAGEDûBORROWERSûINûBROADûSWATHESûOFûTHEû

economy.

!VERAGEûHIGH

YIELDûSPREADSûWIDENEDûBPû

TOûBPûOVERû4REASURIESûAûCYCLICALûHIGHû

according to CreditSights, and wider than

THEûBPûSEENûINûTHEûLASTûPEAKûINû

Default risk is climbing rapidly, the

RESEARCHûlRMûSAID

“The breadth of fundamental pain

unfolding across so many industries makes

the current backdrop a much riskier mix of

FACTORSûTHANûEARLYû

“The reality is that default risk is climbing

rapidly in what has been called by some a

‘full stop’ economic effect that is

unprecedented for many markets.”

Virtually no corners of the high-yield

MARKETûHAVEûBEENûIMMUNEûFROMûTHEûRECENTû

sell-off.

The following sectors were all trading at

four-year wides, according to ICE BofA data:

AUTOMOTIVEûBANKSûCONSUMERûGOODSû

consumer products, energy, healthcare,

industrial, media, retail, telecoms and

transportation.

“We expect credit conditions globally to

deteriorate and defaults to rise in coming

months,” said Moody’s in a report on

CORPORATEûRElNANCINGûRISKûONû4HURSDAY

h-OSTûCOMPANIESûHAVEûRELATIVELYûHEALTHYû

MATURITYûPROlLESûBUTûTHOSEûWITHûMATURITIESû

INûûANDûûMAYûlNDûMARKETûACCESSû

extremely limited – or completely

UNAVAILABLEûFORûTHEûWEAKESTûCOMPANIESv

%VENûHOMEBUILDERSûWHICHûUNTILûRECENTLYûHADû

been a darling of the high-yield sector and the

BESTûPERFORMINGûSECTORûINûûAREûEXPECTEDûTOû

COMEûUNDERûPRESSUREûASûTHEûVIRUSûIMPACTSûONû

demand for new housing in the critical spring

selling season and weighs on margins.

While better capitalised homebuilders

should be able to weather the economic

storm, a surge in building could result in an

EXCESSûOFûINVENTORYûIFûTHEûVIRUSûDAMPENSû

demand meaningfully in the near term, said

Fitch in a report on Thursday.

3TILLûAVERAGEûSPREADSûAREûSTILLûUNDERûTHEû

peaks seen during the 2008 crisis.

And while the amount of bonds trading

below a price of 70 has increased by

US$115bn to US$218bn in March, that is

comparable to a peak of US$244bn in

&EBRUARYûûANDûASûHIGHûASû53BNûINû

December 2008, JP Morgan said in a note on

Wednesday.

4HOUGHûTHEûECONOMICûIMPACTSûOFûTHEûVIRUSû

may be deeper and wider-reaching than that

RECESSIONû*0û-ORGANûPOINTEDûTOûSEVERALû

factors suggesting the high-yield market

may be in better structural shape.

h4HEûLACKûOFûBRIDGEûRISKûLIMITEDûINVESTORû

LEVERAGEûTHEûCOMPOSITIONûOFûNEWûISSUANCEû

SINCEûEARLYûûANDûAûFOCUSûBYûCORPORATIONSû

ONûDE

LEVERAGINGûVERSUSûRE

LEVERAGINGûHASû

the market healthier today compared with

2007.”

!NDûTHEYûADDEDûTHEûSPREADûENVIRONMENTû

SEENûTODAYûMAYûOFFERûINVESTORSû

opportunities.

“With a horizon of a year or more, an

INVESTORûHASûNEVERûLOSTûMONEYûINûû

examples buying HY bonds as spreads cross

BPvûTHEYûSAID

DELTA AT RISK OF DOWNGRADE TO

JUNK BY MOODY’S

Moody’s put all DELTA AIR LINES‘ ratings on

watch for downgrade on Tuesday, including

its Baa3 unsecured rating, as airlines feel the

brunt of the economic shock from the

SPREADûOFûCORONAVIRUS

Delta’s unsecured rating is on the lowest

RUNGûOFûTHEûINVESTMENT

GRADEûSPECTRUMûATû

"AAûSOûAûDOWNGRADEûWOULDûPUTûTHEûlRMû

into junk territory.

4HEûREVIEWûFORûDOWNGRADEûREmECTSû

-OODYSûCONCERNSûTHATûTHEûCORONAVIRUSûWILLû

SIGNIlCANTLYûCURTAILû53ûDOMESTICûANDûGLOBALû

DEMANDûFORûAIRûTRAVELûUNTILûATûLEASTû*UNEûTHEû

lRMûSAID

Delta said on March 13 that it will

SUSPENDûALLûmIGHTSûTOû#ONTINENTALû%UROPEûFORû

ATûLEASTûûDAYSûREDUCEûITSûOVERALLûPASSENGERû

CAPACITYûBYûûANDûDELAYûDELIVERYûOFûNEWû

aircraft.

S&P put the company’s BBB- corporate

rating on watch for downgrade on March 13.

Fitch has a BBB- rating on the company.

4HEûCOMPANYSûBONDSûHAVEûGAPPEDûOUTû

along with the rest of the airline sector this

MONTHûWITHûITSûûSûMOVINGûBPû

WIDERûINûTHEûMONTHûTOûDATEûTOûBPûOVERû

4REASURIESûONû4HURSDAYûANDûTHEûû

SûMOVINGûBPûWIDERûTOûBPûOVERû

according to MarketAxess.

The airline industry has suffered some of

the most immediate economic impacts of

THEûSPREADûOFûCORONAVIRUS

4HEû$ELTAûREVIEWûCAMEûASû-OODYSûALSOû

downgraded the senior unsecured debt

International Financing Review March 21 2020 35

BONDS HIGH-YIELD

6 IFR Bonds 2325 p 23 - 45 .indd 35 20 / 03 / 2020 19 : 59 : 40