International Financing Review September 8 2018 9For daily news stories
@ visit http://www.ifre.com“Alteri will have inherited
whatever build-up basket
capacity to make restricted
payments CBR has accumulated
since the issuance of the bonds,”
Tadros said.
The bond was sold with
obliging terms in October 2017
despite the fact that the
company had restructured loan
debt in 2016, following a
suspended IPO a year earlier.READING THE FINE PRINT
CBR is joining a growing list of
high-yield issuers to have taken
advantage of flexibility gained
through recent deals.
In May, British retailer SHOP
DIRECT’s results disclosed that it
paid £123m in intercompany
loans during the nine months
ending that month, leaving
£12.3m in cash and bank balances.
The loans, which can be used
to pay dividends to shareholders
the Barclay brothers, spooked
investors - leading to a 15-point
drop of the bonds in the
secondary market. The bonds
had already been under
pressure given the company’sdeteriorating earnings and
financial metrics.
Just weeks before this, French
frozen foods retailer PICARD
tapped a bond from December
2017 to help fund a €78m
dividend payment to
shareholders led by Lion
Capital, months after paying a
dividend using part of the
original tranche. Its pro forma
cash levels came down to €70m,
according to analysts at Lucror
Analytics, from €148m at the
end of 2017, and the dividend
payment led to a one-notch
rating downgrade from S&P to
B.
Covenant research service
firms had warned about both
companies’ abilities to pay
additional dividends while the
bonds were being marketed.
“[Investors] need to assess on
a case-by-case basis whether
they would be happy with a
company leveraging itself up to
the level permitted by its debt
covenant or making payments
out to the extent permitted by
its restricted paymentscovenant,” Tadros said. (^) n
premium for the callable
structure,” said a source close to
the deal, who said that HSBC’s
strong name recognition helped
interest investors.
DOLLAR CLASH
A small complication came in
the middle of marketing when
HSBC on Wednesday launched a
US$3.25bn offering, including a
8NC7 tranche that was priced at
a yield of 4.292%.
“A few investors raised
questions after the dollar
transaction hit the screens
because the initial price thoughts
were 20bp wider than what we
were showing to yen investors,
but it had 20bp of price tension,”
said another source. “When
investors got to the office the
next morning they saw pricing
was in line with the yen trade.”
After IPTs of 165bp area was
announced, the 8NC7 dollar
tranche was priced at Treasuries
plus 145bp, which Japanese
bankers said translated to
around 55bp over yen offer-side
swaps, in line with the pricing
of the Samurai tranche.
HSBC, Daiwa, Mizuho and SMBC
Nikko were bookrunners for the
Samurai deal, which was run
using the pot system.
The senior bonds are
expected to be rated A2/A
(Moody’s/S&P).
In August, HSBC reported
profit before tax of US$10.7bn
for the first half, up 4.6% on the
same period in 2017, but
adjusted profit before tax of
US$12.1bn was 1.8% lower than
for the same period a year
earlier. The bank said revenue
growth and lower expected
credit losses were offset by
higher operating expenses.
In June, group chief executive
John Flint said the bank was re-
entering “growth mode” after a
period of restructuring, and
would target a return on
tangible equity of greater than
11% by 2020. Part of the bank’s
strategy is to accelerate growth
in its Asian business, according
to its 2017 annual report. (^) n
Eni and Unilever lead
rush of Yankees
n Bonds Europeans hurry back after Labor Day
BY JOY WILTERMUTH,
SHANKAR RAMAKRISHNAN
Italian energy company ENI and
UK consumer goods giant
UNILEVER led a surge of Yankee
issuance in the US high-grade
primary market last week,
seizing a chance to lock in
attractive borrowing costs
overseas.
Slightly more than US$17bn
was raised during the week by
seven non-US global corporates
and financials, with CREDIT SUISSE,
HSBC and MIZUHO FINANCIAL GROUP
also joining the party.
The rush of deals put volumes
only narrowly below the busiest
week for Yankee dollar funding
so far this year - when
US$22.5bn was raised during
the second week of May,
according to Thomson Reuters
data.
The companies crossed the
ocean for attractive financing
terms and to keep up a presence
in the deep wells of the US dollar
market, bankers said.
“When you think of various
European corporates, they will
finance in dollars so long as
there is some parity in financing
costs,” said one banker involved
in some of the week’s Yankee
trades.
“It is a market that corporates
want to have access to over the
years, even if they are
infrequent issuers in dollars.”
The main takeaway for Eni, an
A3/A- rated oil and gas producer,
was that it can still find a
welcome in the US dollar
market even after a hiatus of
nearly eight years.
ITALIAN HOLIDAY
Eni raised US$2bn, with strong
investor demand showing the
buyside had shrugged off
negative headlines about the
Italian economy.
Total books were US$7.8bn,
with the US$1bn five-year
portion getting US$3.7bn and
the US$1bn 10-year ending up
with US$4.1bn. Order slippage
seemed modest despite a 30bp-
40bp narrowing of spreads
through bookbuild.
“It’s an Italian-domiciled
company and Italy has been in
the papers,” said Matt Buckley, a
portfolio manager at Eaton
Vance. “But it is also a
diversified, multinational
company and it has very low
leverage.”
S&P upgraded Eni to A- from
BBB+ in August.
Bookrunners on the Eni trade
were Bank of America Merrill Lynch,
BNP Paribas, Citigroup, Goldman
Sachs, JP Morgan, Morgan Stanley
and Wells Fargo.
TIMING IS EVERYTHING
It was timing and years of
disciplined debt issuance that
ensured solid success for
Unilever in its second trip of the
year to the dollar bond market,
said a senior banker involved in
the bond sale.
With an eye on a chunky
share buyback plan, the
company - which usually caps its
dollar visit to just one a year -
decided to dip into the market
again.
The A1/A+ rated consumer
giant viewed this voyage less as
an arbitrage play on US versus
European funding costs, and
more of a matter of seizing the
moment.
“The benefit of being first out
of the gates after Labor Day is
you steer clear of expected
supply, and that decision by the
company was proved right,” said
the banker.
Unilever was able to tighten
all three tranches on its
US$1.5bn trade by up to 13bp
from initial price thoughts and
price them with just 2bp to 5bp
in new-issue concession.
Bank of America Merrill Lynch,
Goldman Sachs, JP Morgan and
UBS were active bookrunners
on the Unilever trade, which
traded 1bp to 2bp tighter on the
break. (^) n
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