26 International Financing Review March 7 2020Euro deals surprise to the upside
Deals price tighter than expected
The euro investment-grade corporate
market was back up and running after a
week-long hiatus, though bankers say
issuance opportunities will need to be
assessed on a day-by-day basis.
Credit markets remain at the mercy of
headlines on the coronavirus. But bankers
were heartened by the success of last week’s
deals.
“It’s a great result to get their trades done
in a volatile market,” said a banker on
Tuesday about new issues from RELX and
HONEYWELL. “They picked their slots
opportunistically.”
The UK publisher and US manufacturing
COMPANYûWEREûTHEûlRSTûISSUERSûINûTHEûEUROû
market in a week.
RELX printed a €2bn triple-tranche, while
Honeywell raised €1bn through a two-part
transaction.
4HEûlNALûLEVELSûSUGGESTEDû2%,8ûPAIDû
premiums of 10bp–15bp, while Honeywell
offered about 5bp.
“I would say ... they potentially surprised
to the upside,” said a second banker.
Leads thought the deals came 5bp tighter
than expected across the tranches, though
in an illustration of how much the market
has been affected by the sell-off in credit,
one banker said they priced 20bp–30bp
wider than where they would have come on
February 21.
Both issuers had undertaken investor
meetings. “We still had lots of interaction
and feedback from investors since it was still
part of the roadshow process, so execution
risk was never a concern. It was just a case of
trying to get rid of as much of the excess
premium as a result of the massive market
WIDENINGûSEENû;THEûWEEKûBEFORE= vûSAIDûAû
third banker.
RELX and Honeywell opened books after a
big rebound in US stocks but by the time
they priced later on Tuesday US equities
were back in panic mode after an emergency
50bp rate cut by the Federal Reserve.
Still, the euro market was in full swing on
7EDNESDAYûWHENûlVEûISSUERSûWEREûOUT û
including four drive-bys.
A decent session in Asia and stable open in
Europe, coupled with a 2bp–5bp tightening
in the RELX and Honeywell bonds after they
were free to trade, gave syndicates enough
encouragement to go ahead.
BERKSHIRE HATHAWAYûPRINTEDûAûõBNûlVE
year, CARLSBERG BREWERIES sold a €500m
10-year and SCHNEIDER ELECTRIC a €800m nine-
YEAR ûWHILEû53ûOILlELDûSERVICESûCOMPANYû
SCHLUMBERGER tapped its October 2027s and
October 2031s for a combined €800m. Theywere joined by a previously marketed €500m
12-year transition bond from CADENT GAS.
While most of those deals had not been
announced beforehand, bankers played down
the lack of pre-marketing. “We haven’t got to
the point where we need to sound out these
names,” said a fourth banker.
In any case, while a roadshow can be
useful in re-establishing a market, investors
have their own pricing interests to protect,
which can undermine feedback.
Still, trusting the validity of secondary
levels is a challenge when liquidity wanes.
7ITHûTHATûINûMIND ûSYNDICATEûOFlCIALSûTRODû
carefully.
Berkshire Hathaway (Aa2/AA) for example
started 35bp back of fair value, with IPTs of
the 80bp area over swaps for its March
2025s.
The holding company is a regular visitor
to the euro market in March and this issue
WILLûRElNANCEûAûõBNûûûCOMINGûDUEû
on March 13.
Carlsberg (Baa2/–/BBB+) also began with a
35bp–40bp concession for its no-grow 2030s
at IPTs of 120bp–125bp.
France’s Schneider (A3/A–) began roughly
30bp back after announcing talk of the 85bp
area.
However, good demand enabled leads to
wipe out most of the concessions. Berkshire
drew a book of €5.25bn, launching at 47bp
with a 2bp premium.
Carlsberg, too, came at a relatively tight
level. The note launched at 90bp over swaps,
suggesting a 5bp premium, off a book of
about €4.5bn.
Schneider printed just 1bp back of fair
value after launching at 58bp with books at
€3.4bn.
Schlumberger also got in on the act, upsizing
its tap by a combined €200m to add €400m to
each note. This despite the additional risk
associated with oil-related credits.
Meanwhile Cadent Gas arguably came
with a zero to 5bp premium. The bond
launched at 100bp over swaps, with the
book growing by an additional €1bn to
€4.5bn after guidance of 105bp–110bp was
announced. IPTs were 130bp area.
And while there was only other deal for
the rest of the week – an opportunistic
€500m October 2025 senior unsecured green
bond from VATTENFALL off a €3.5bn book – the
market has proved its ability to function if
headlines allow.
“As soon as there is even the smallest
opening, we jump in and get deals done,”
said the third. (See Top News for more.)
Sudip RoyWEEK IN NUMBERS
0.69%
THE YIELD THAT 10-YEAR TREASURIES
FELL TO LAST WEEK AFTER THE FEARS
ABOUT THE IMPACT OF CORONAVIRUS
PANICKED INVESTORS. THE BENCHMARK
NOTE’S YIELD FELL INSIDE 1% FOR THE
FIRST TIME IN ITS HISTORY13
THE NUMBER OF ISSUERS IN THE US
HIGH-GRADE MARKET ON WEDNESDAY
TO FOLLOW THE SEVEN ON TUESDAY.
THEY WERE THE FIRST DEALS IN THE US
IG CORPORATE MARKET IN MORE THAN A
WEEK85bp
THE SPREAD AT WHICH THE iBOXX EURO
NON-FINANCIAL INDEX WAS TRADING
LAST WEEK, 20bp WIDER THAN BEFORE
THE SELL-OFF BUT STILL ONLY BACK AT
LAST SEPTEMBER’S LEVELS50bp
THE SIZE OF THE EMERGENCY RATE
CUT THE FED ANNOUNCED ON TUESDAY
TO TAKE THE TARGET RANGE TO
1.00%-1.25%. IT WAS THE CENTRAL BANK’S
FIRST INTER-MEETING CUT SINCE 2008€711m
THE AMOUNT OF CORPORATE BONDS
THE ECB BOUGHT (NET) IN THE WEEK
TO FEBRUARY 28 AS PART OF ITS CSPP
COMPARED WITH €1.587bn THE WEEK
EARLIER
In total, it has bought €17.549bn%0.60.81.01.21.41.61.82.031/12/19 31/01/20 28/02/20bp60708090100110120Jan Mar
2020Jan Mar Jun Sep
20196 IFR Bonds 2323 p 25 - 53 .indd 26 06 / 03 / 2020 19 : 18 : 06