UK water companies raised £2bn from
lVEûTRADESûLASTûYEARûVERSUSûaMûFROMûTWOû
bonds in 2016.
Moody’s recently assigned or maintained
negative outlooks on six UK water groups,
including Severn Trent but excluding Dwr
Cymru. Justifying its actions, the ratings
agency said the companies concerned were
the most exposed to the likely cut in allowed
returns from 2020, as guided by Ofwat in its
methodology for the 2019 price review.DIGNITY WIDENS ON PROFIT WARNINGUK funeral services company DIGNITY saw its
bonds widen on Friday after warning that its
2018 results would be substantially below
market expectations because of price cuts.
Its December 2034s were trading at
128.5bp over Gilts on Friday, 26bp wider
than on Thursday, while its December 2049s
were 58bp wider at 215bp.
Meanwhile, its shares halved after the
company said in a statement that
“customers are increasingly price-conscious
and in an over-supplied industry, are
shopping around more”.SWISS FRANCS
FOREIGN ISSUERS BACK INTO
SWISS MARKETAfter a couple of weeks of the Swiss market
concentrating on domestic supply, the
combination of a rising rate environment, a
favourable basis swap and scarcity value –
with no supply for some time – opened the
doors for foreign issuers.
Five-year and 10-year swaps were up 10bp
from their levels at the start of the year, and
up nearly 35bp year-on-year. Concurrently,
the basis swap has improved, allowing
easier access to the Swiss franc market.
One issuer that has been active in
sterling, euros and US dollars in the past few
years took the opportunity to expand into
Swiss francs. AROUNDTOWN, rated BBB+ by
S&P, opened books on a SFr150m minimumseven-year at mid-swaps plus 60bp-65bp.
Solid demand allowed the trade to be
INCREASEDûINûSIZEûTOûAûlNALû3&RM ûWITHû
pricing coming mid-range at plus 62bp. That
was a 0.732% coupon and yield at the par
reoffer, equivalent to Swiss government
bonds plus 101.9bp.
That swaps level put the new paper
roughly 2bp inside the issuer’s euro curve,
when adjusted for the basis swap.
Against domestic Swiss property
companies, the bonds came around 10bp
wide of SPS and 45bp wide of PSP, although
PSP is Single A rated and trades very
expensively.
A fairly granular book with more than 60
accounts taking part, almost all Swiss, saw
asset managers and private banks take the
majority, with around 60% and 25%,
respectively.
Credit Suisse and UBS were leads on the
deal.
Aroundtown was quickly followed by
crossover unrated credit RALLYE, which
returned to the Swiss market on Thursday
with only its second deal in the currency,
slightly upsizing from indications of SFr70m
TOûREACHûAûlNALû3&RMûSIX
YEARûNOTEû)Tû
priced in line with guidance with a 3.25%
coupon and yield at par.
Sole lead UBS had sounded out the market
on Wednesday at the 3.375% area level.
At reoffer, the bonds came at mid-swaps
plus 320.5bp. That was very tight compared
with its outstanding euro paper, with the
4.371% January 2023s bid at the equivalent
of Swiss franc mid-swaps plus 353bp ahead
of the new deal’s announcement.
Assuming a similar 25bp per annum, as
seen in the issuer’s euro curve, that put the
new bond nearly 60bp inside.
Against its own (and only) outstanding deal
in the franc, the 4% November 2020 issued in
late 2016, the new paper came broadly in
line. The 2020s were bid at 2.75% ahead of the
new deal, and Swiss bankers said that the
normal curve for crossover/high-yield paper
in Swiss francs is around 10bp.
As usual for this type of credit, mostly
(96.5%) Swiss private banks (98%) bought the
deal, with a very granular 50 accounts
taking part for an average ticket size of
SFr1.7m.FIG
US DOLLARS
US BANK SUPPLY SEES RAUCOUS
DEMAND FOR FIRST ISSUANCE OF 2018Eight US banks priced US$36.3bn of
new bonds between them last week
after reporting earnings that were
dominated by losses related to the new
US tax laws.
JP MORGAN and WELLS FARGO led the way as
THEûlRSTû53ûBANKSûTOûHITûTHEûûHIGH
GRADEû
bond market as investors stampeded the
offerings.
“The market viewed 4Q results as a blip
with one-time charges and improved
outlook going forward,” one investor told
IFR. “Deals priced well because investors
focused on lack of issuance.”
Indeed, the buyer base was eager to sink
its teeth into chunky offerings after a
relatively thin start to January.
At the end of the week prior, year to-date
high-grade issuance was trailing YTD 2017
supply by about US$30bn, according to IFR
data.
The supply drought meant investors were
prepared to be more forgiving of the shaky
results.
Take CITIGROUP, which hit the market
straight after an earnings report in which
the bank disclosed a US$18bn loss related to
new US tax laws.
Despite the hit, investors submitted
US$6.7bn in orders for the US$3bn
two-part senior unsecured deal on
Wednesday.
That was a big enough book to whittle
new issue concessions down from double
digits at IPTs to 3bp-5bp when the trade was
launched.
The same was true for GOLDMAN SACHS and
BANK OF AMERICA, which entered the market
on Thursday after reporting disappointing
earnings a day prior.
'OLDMANûPOSTEDûITSûlRSTûQUARTERLYûLOSSûINû
six years after a drop in trading revenue and
a one-time tax charge.
And Bank of America’s US$2.9bn one-time
TAXûLAWûHITûNEARLYûCUTûITSûQUARTERLYûPROlTSûINû
half, according to a Reuters report.
Nevertheless, Goldman succeeded with its
US$6.75bn three-part deal, launching its
lVE
YEARûANDû.#ûlXED
RATEûTRANCHESû
15bp inside initial price talk.
And Bank of America priced a US$5.25bn
four-parter the same day, with new issue
PREMIUMSûOFûZEROûTOûBPûONûITSûlXED
RATEû
tranches.
MORGAN STANLEY priced the largest deal ofALL CORPORATE BONDS IN STERLING
BOOKRUNNERS: 1/1/2018 TO DATE
Managing No of Total Share
bank or group issues £(m) (%)
1 NatWest Markets 1 40.00 20.0
=1 HSBC 1 40.00 20.0
=1 Barclays 1 40.00 20.0
=1 Credit Suisse 1 40.00 20.0
=1 Lloyds Bank 1 40.00 20.0
Total 1 200.00
Source: Thomson Reuters SDC code: N8aALL SWISS FRANC BONDS EXCLUDING
SECURITISATIONS
BOOKRUNNERS: 1/1/2018 TO DATE
Managing No of Total Share
bank or group issues SFr(m) (%)
1 Credit Suisse 9 1,028.81 38.6
2 UBS 8 873.21 32.8
3 Raiffeisen Schweiz 2 349.81 13.1
4 ZKB 4 235.75 8.9
5 Deutsche Bank 1 87.78 3.3
6 Commerzbank 1 87.57 3.3
Total 12 2,662.92
Including preferreds. Excluding equity-related debt.
Source: Thomson Reuters SDC code: K06b