IFR 03.21.2020

„ FRONT STORY CORPORATES

PEPP resuscitates euro corporate primary

Engie, Unilever spring to life as ECB throws lifeline

Two corporate borrowers hitting

THEûPRIMARYûMARKETûWITHûlVEûTRANCHESû

on Friday demonstrated the healing

powers of the European Central Bank’s

Pandemic Emergency Purchase

Programme, breaking an impasse of six

working days without primary corporate

euro issuance.

“The ECB was the catalyst,” said a lead

on one of Friday’s trades. “[Thursday’s]

markets were orderly, no real big swings

but a 1%, 1.5% rise in equities. We were all

looking at screens, going: ‘if we can

maintain this for 12 hours we can execute

something’.”

On Wednesday, the ECB announced the

€750m PEPP to deal with “serious risks to

the monetary policy transmission

mechanism and the outlook for the euro

AREAûPOSEDvûBYûTHEûNOVELûCORONAVIRUS

On Friday, ENGIE (A3/A–/A), the French

utility, and UNILEVER (A1/A+), the consumer

goods company, breathed life back into

corporate issuance. The former announced

March 2025s, 2028s and 2032s, the longer

two notes carrying green use-of-proceeds

language. The latter brought March 2025s

and 2030s.

h)TûWOULDûHAVEûBEENûBANANASûTOûHAVEû

WAITEDû4HEREûWILLûBEûMOREûVOLATILITYûSOûDOû

something now and come with a decent

premium,” said the banker.

4HEûCONCEPTûOFûFAIRûVALUEûISûCURRENTLYû

SEENûASûACADEMICûGIVENûTHEûMOVESûINû

spreads.

But with Engie announcing at 180bp,

BPûANDûBPûAREASûOVERûSWAPSûANDû

5NILEVERûATûBPûAREAûANDûBPnBPû

the two corporates were starting between

BPûANDûBPûNORTHûOFûTHEIRûSECONDARIES

“The European issuers tend to be more

measured than the US when it comes to

recalibrating pricing for new issues when

markets change,” said Frazer Ross, head of

IG EMEA syndicate at Deutsche Bank, a lead

ONû5NILEVER

“If you tell a company in the US they

need to pay a 75bp premium to do the

trade, they are more likely to accept and

MOVEûONûBUTûTHEû%UROPEANûISSUERSûWANTûTOû

SEEûOTHERSûMOVEûlRSTv

53ûCORPORATESûHAVEûBEENûMUCHûQUICKERû

to return to their home currency than

their European counterparts in euros. On

Thursday alone, three US names sold

bonds across 12 tranches.

The latest iteration of the ECB’s

QUANTITATIVEûEASINGûPROGRAMMEûCOMESûONû

TOPûOFûTHEûõBNû1%ûENVELOPEûFORûTHISû

year, as well as the €20bn a month

currently being purchased as part of an

open-ended QE programme. This year’s

total QE will be €1.11trn.

Through the PEPP, the ECB will buy both

PRIVATEûANDûPUBLICûSECTORûSECURITIESûWITHû

the purchase of public sector securities

based on the capital key of the national

central banks.

.OTABLYûASûWELLûASû'REEKûGOVERNMENTû

bonds being included, the corporate

sector purchase programme will

INCLUDEûALLûCOMMERCIALûPAPERûOFûSUFlCIENTû

credit quality, and collateral standards

will be eased to expand Additional

Credit Claims (ACC) to include claims

RELATEDûTOûTHEûlNANCINGûOFûTHEûCORPORATEû

sector.

“What we are likely to continue to see is

the market rally and sell-off based on the

PROGRESSûOFûTHEûVIRUSû7HATûWEûWILLûSEEûLESSû

of now is the market rally and sell-off

based on liquidity concerns,” said Ross.

“Only a few days ago, we were seeing

ûSELLINGûANDûûBUYINGûFROMûSOMEû

clients; now it’s around two-thirds to one-

THIRDû/BVIOUSLYûSTILLûNOTûGREATûBUTûTHATû

change has happened in a few days, so

WHATûWEûAREûSEEINGûISûVERYûHEALTHYûANDûAû

lRSTûSTEPûTOûNORMALISATIONv

RIGHT NAMES, RIGHT TIME

As predicted by syndicate bankers prior to

Friday, the names to reopen the market

were low-beta issuers sporting strong

credit ratings.

3EVERALûALSOûOBSERVEDûTHATû5NILEVERûWASû

INûAûGOODûPOSITIONûTOûCOMEûTOûMARKETûGIVENû

that its business, orientated towards

consumer goods, has seen soaring demand

because of stockpiling.

Engie, meanwhile, is a well-known,

frequent, ECB-eligible borrower that “ticks

all the boxes”, said a lead.

Both names were met with a

strong reception under the

circumstances.

Engie’s triple-tranche deal landed at

BPûBPûANDûBPû5NILEVERûSETû

spreads at 140bp and 170bp.

4HEûRESPECTIVEûTOTALûPRE

RECONCILEDû

BOOKSûWEREûOVERûõBNûANDûõBNû

Across all tranches, Engie sold €2.5bn and

5NILEVERûõBN

$ESPITEûTHEûPOSITIVEûRESPONSEûTOûTHEûNEWû

TRADESûBANKERSûLEADINGûBOTHûSAIDûINVESTORSû

HAVEûBEENûSLOWûTOûSETûUPûTHEIRûREMOTEû

capabilities. That made for slower

BOOKBUILDSûANDûSOMEûINVESTORSûSITTINGûITû

out on the sidelines.

Although more borrowers are expected

to return, the pace will probably remain

slow as issuers head into earnings blackout

periods.

h%NGIEûANDû5NILEVERûAREûBOTHûVERYûSTRONGû

issuers and their trades are laying the

GROUNDWORKûFORûMOREûACTIVITYûASûWELLûASûAû

number of US trades,” said Tomas

Lundquist, head of European corporate

debt capital markets at Citigroup, a lead on

both of Friday’s deals

“I think the market is opening up for

more issuers to come, although of course

there will be a natural slowdown as we

head to the end of the quarter and issuers

enter blackouts,” he said.

“We had been monitoring the market

and, because of our earnings blackout,

today was really our last opportunity to

ISSUEû7EûDIDNTûHAVEûANYûIMMEDIATEû

lNANCINGûNEEDSûBUTûWANTEDûTHEûEXTRAû

liquidity,” said Janine Juggins, EVP Global

4AXûû4REASURYûATû5NILEVER

CROWDING OUT?

One concern about the PEPP, under

NORMALûCONDITIONSûWOULDûBEûTHATûTHEûmOODû

of central bank liquidity would crowd out

OTHERûINVESTORSû"UTûTHISûISûNOTûYETûANûISSUEû

market participants are worried about.

“In normal market conditions, it would

be reasonable to worry about the ECB

CROWDINGûOUTûNORMALûINVESTORSû"UTûGIVENû

THATûTHEû0%00ûISûDESIGNEDûTOûFUNDûlSCALû

STIMULUSûANDûALLEVIATEûTHEûPRESSUREûOFû

OUTmOWSûTHEûCROWDING

OUTûEFFECTûSHOULDû

BEûSOMETHINGûWEûDONTûHAVEûTOûWORRYû

about until 2021,” said a banker away from

Friday’s trades.

Ed Clark

International Financing Review March 21 2020 23

BONDS

SSAR 25 Corporates  FIG 32 Covered Bonds 34 High-Yield 35 Structured Finance 

6 IFR Bonds 2325 p 23 - 45 .indd 23 20 / 03 / 2020 19 : 59 : 37