IFR International - 20.10.2018

„ FRONT STORY CORPORATES

Investors push back in sterling

One deal pulled, another relaunched

Balance of power seen shifting

!ûlVE
YEARûSTERLINGûTRANSACTIONûFORûRCI BANQUE
CAMEûUNSTUCKûLASTûWEEK ûFORCINGûTHEûLEADû
MANAGERSûTOûCANCELûTHEûTRADEûINûTHEûMIDDLEû
OFûEXECUTIONûASûINVESTORSûGROWûMOREû
CONlDENTûABOUTûHOWûMUCHûPOWERûTHEYûCANû
WIELDûINûPRIMARY
4HISûWASûTHEûSECONDûTIMEûINûLESSûTHANûAû
WEEKûTHATûANûISSUERûHASûRUNûINTOûTROUBLEûINû
THEûSTERLINGûMARKET ûALTHOUGHûTHEREûHAVEû
ALSOûBEENûSIGNSûTHATûTHEûEUROûSECTORûISûTRICKY û
WITHûDEALSûEITHERûPOSTPONEDûORûNOTû
EMERGINGûALTOGETHER
h4HEREûHASûBEENûMONEYûLEAVINGûCREDIT û
WHICHûMEANSûTHEûNEEDûTOûPARTICIPATEûINû
PRIMARYûMARKETûACTIVITYûFORûAûLOTûOFûPEOPLEûINû
RECENTûQUARTERSûHASNTûBEENûTHERE vû&RASERû
,UNDIE ûCO
HEADûOFûCREDITûATû(ERMESû
)NVESTMENTû-ANAGEMENT ûTOLDû)&2
h4HEûDECISIONûTOûPARTICIPATEûISûMUCHûMOREû
DRIVENûBYûTHEûOPPORTUNITYûSETûASûOPPOSEDûTOû
THEûREQUIREMENTûTOûlLLûUPûMANDATESv
HSBC LloydsûANDûNatWest Markets ûWHICHû
WEREûLEADûMANAGERSûONû2#)SûBENCHMARK û
BLAMEDûADVERSEûMARKETûCONDITIONSû)TûWASû
THEûSAMEûSETûOFûLEADSûONûSOUTHERN HOUSING
GROUP ûWHICHûBOTCHEDûITSûRUNûATûTHEûMARKETû
ANDûWASûFORCEDûTOûRELAUNCHûAûDEBUTûSTERLINGû
BONDûBPûWIDERûAFTERûINVESTORSûPUSHEDûBACKû
ONûAGGRESSIVEûPRICINGûTACTICS
"UTûWHILEûTHEûTONEûHASûSOUREDûACROSSûTHEû
%UROPEANûBONDûMARKETSûASûVOLATILITYû
STEMMINGûFROMû)TALYûANDû"REXITûSHOWSûLITTLEû
SIGNûOFûABATING ûTHEûPROBLEMûINûSTERLINGûISû
PARTICULARLYûACUTE ûBANKERSûSAID
4HEûSTERLINGûINVESTORûBASEûISûDOMINATEDûBYû
AROUNDûTHREEûLARGEûINVESTORS ûWHOûHAVEû
OUTSIZEDûPRICINGûPOWERûCOMPAREDûWITHûOTHERû
MARKETSû!NDûTHOSEûINVESTORSûAREûINCREASINGLYû
PREPAREDûTOûWALKûAWAYûFROMûDEALSûANDûVOTEû
WITHûTHEIRûFEETûIFûTHEûTERMSûDOûNOTûSUITûTHEM
h)NVESTORSûHAVEûSUFFEREDûSOMEûPAINûTHISû
YEAR ûANDûWITHûTHEûPRESENTûMACROûVOLATILITYû
THEYûAREûCHOOSINGûTOûEXERTûPOWERûWHEREû
THEYûCAN vûAûLEADûONûTHEûDEALSûSAID
"ANKERSûSAYûINVESTORSûAREûONLYûCHOOSINGûTOû
EXERTûPRICINGûPOWERûONûPARTICULARûDEALS û
POINTINGûTOûSTERLINGûSUCCESSESûSUCHûASû
ANGLIAN WATER ûWHICHûPRICEDûTHEûSAMEûDAYûASû
3OUTHERNû(OUSING ûBUTûWITHûAûBOOKûTHATûWASû
THREEûTIMESûCOVERED
h)TSûFEASTûORûFAMINE vûTHEûLEADûSAID

TOO AGGRESSIVE

)NVESTORSûANDûBANKERSûAWAYûBLAMEDûTHEû

TOO

AGGRESSIVEûPRICINGûAPPROACHûONû

3OUTHERNû(OUSINGû'ROUPSûOUTCOMEû

SAYINGûTHATûIFûTHEûISSUERûHADûPUTûAûFEWûMOREû

BASISûPOINTSûONûTHEûTABLEûITûMIGHTûHAVEû

BEENûAûDIFFERENTûSTORY

&ORû2#)ûOTHERûFACTORSûWEREûATûPLAYû4HEû

AUTOûlNANCEûCOMPANYûSETûINITIALûPRICEû

THOUGHTSûATûBPûAREAûOVERû'ILTSûWHICHû

OFFEREDûAROUNDûBPûOFûNEW

ISSUEû

CONCESSIONûCOMPAREDûWITHû2#)Sû

OUTSTANDINGûEUROûISSUESû

ûAûLARGERûPREMIUMû

INûTHEûMARKET

)NVESTORSûEDGEDûBACKûAFTERûAûBOOKûUPDATEû

THATûSHOWEDûORDERSûOFûAROUNDûaMû

û

aMûOFûWHICHûWASûRETAINEDûBYûLEADSûONû

THEûDEALûACCORDINGûTOûANûINVESTORûANDûONEû

OFûTHEûBANKERSûAWAY

4HEûBOOKûWOULDûHAVEûLEFTûTHEûDEALûJUSTû

COVERED

h)TûDIDNTûBODEûWELLûFORûTHEûPERFORMANCEû

OFûTHEûBONDvûANûINVESTORûSAID

!ûSECONDûLEADûSAIDû2#)ûDECIDEDûTOûCANCELû

THEûTRADEûBECAUSEûITûWASûNOTûSUREûTHEû

TRANSACTIONûWOULDûPERFORMûAFTERû

EXECUTION

4HEûTEPIDûINVESTORûRESPONSEûWASûLARGELYû

DOWNûTOûBROADERûCONCERNSûABOUTûTHEûAUTOû

SECTORûRATHERûTHANûPRICINGûTHEûSECONDûLEADû

SAID

$ATAûRELEASEDûTHEûDAYûBEFOREûTHEûDEALû

SHOWEDû%UROPEANûCARûSALESûHADûDROPPEDûBYû

ûINû3EPTEMBERû

ûLEDûBYû6OLKSWAGENû&IATû

#HRYSLERûANDû2ENAULTû2EUTERSûREPORTED

h!UTOSûAREûUNDERûAûLOTûOFûPRESSUREû

FUNDAMENTALLYûANDûINûTHEûSTOCKûMARKETû

0EOPLEûAREûNOTûEXACTLYûCRYINGûOUTûFORûMOREû

AUTOûRISKûRIGHTûNOWvû,UNDIEûSAID

/NEûCONCERNûAMONGûTHEûBUYSIDEûISûWHATû

MAYûHAPPENûTOûTHEûSECTORûIFû&ORDûANûISSUERû

WITHûAROUNDû53BNûOFûDEBTûOUTSTANDINGû

GETSûDOWNGRADED

-OODYSûCUTûBOTHû&ORDûANDû&ORDû#REDITSû

RATINGSûTOûTHEûLOWESTûBRACKETûOFûINVESTMENT

GRADEûINû3EPTEMBERûCITINGûhEROSIONûINûTHEû

COMPANYSûGLOBALûBUSINESSûPOSITIONv

4HEûAGENCYûDOWNGRADEDû&ORDûBYûONEû

NOTCHûTOû"AAûFROMû"AAû4HEûCOMPANYû

CARRIESû"""ûRATINGSûFROMûBOTHû&ITCHûANDû30û

30SûRATINGûISûONûNEGATIVEûOUTLOOK

4HEûAUTOûSECTORûALSOûHASûTHEûEFFECTSûOFû

"REXITûANDûTRADEûTARIFFSûTOûCONTENDûWITH

LIMPING OVER THE LINE

5NLIKEû2#)û3OUTHERNû(OUSINGSûDEALûGOTû

OVERûTHEûLINEû

ûALTHOUGHûATûAûBIGGERûSPREADû

THANûLEADSûHADûENVISIONED

h)ûTHINKûINûTHEûENDûTHEûRIGHTûPRICEûWASû

FOUNDvûTHEûlRSTûLEADûSAIDûh4HEûBANKSûDIDûAû

DECENTûJOBûTOûRESCUEûITûANDûITûWASûAûREASONABLEû

OUTCOMEûBASEDûONûTHEûMARKETûBACKDROPv

7HILEûTHEûSTERLINGûMARKETûISûNOTûCLOSEDûTOû

ISSUERSûINûTHEûFUTUREûBORROWERSûMAYûHAVEûTOû

PAYûUP

h#ONDITIONSûINûMARKETSûAREûPRETTYûPOORûANDû

THATSûPARTICULARLYûNOTICEABLEûINûSTERLINGvûTHEû

INVESTORûSAIDûh4WOûORûTHREEûINVESTORSûMAKEûAûBIGû

DIFFERENCEûINûTHEûSTERLINGûMARKETûANDûISSUERSû

NEEDûTHATûCOREûINVESTORûBASEûTOûGETûDEALSûDONEv

Eleanor Duncan

BONDS

SSAR  Corporates  FIG  Covered Bonds  High-Yield  Structured Finance 

“Conditions in markets are pretty

poor, and that’s particularly

noticeable in sterling. Two

or three investors make a big

difference in the sterling market,

and issuers need that core

investor base to get deals done”

Source: Refinitiv Eikon

100

110

120

130

140

150

160

04/01/

2018

18/10

bp

BRUISED, BUT NOT BATTERED

THE IBOXX GBP NON-FINANCIALS INDEX