Barclays, HSBC, Lloyds Banking Group, RBS
and Santander UK – to segregate their core
retail banking operations and their
wholesale investment banking operations.
Lenders are proposing to shift their
covered bond debt into the new ring-fenced
banks (RFBs). That is because covered bonds
are a material source of funding for the
mortgage loans that form a substantial part
of the banks’ retail operations.
That shift is positive for UK covered
bonds, Moody’s said in a note published last
Wednesday.
Covered bonds, a form of secured senior
debt, are one of the safest bank funding
instruments and are excluded from bail-in
under European rules known as the Bank
Recovery and Resolution Directive (BRRD).
However, Moody’s argues that the less
COMPLEXûANDûLESSûDIVERSIlEDûBUSINESSû
models of the new ring-fenced entities mean
THEYûWILLûHAVEûAûCREDITûPROlLEûEITHERûINûLINEû
with, or stronger than, those of the existing
banks.
“The RFB structure therefore decreases
the likelihood of bank failure and, as a
consequence, the likelihood that banks will
cease making payments under the covered
bonds, which is credit positive for covered
bonds,” the rating agency said in a note.
The credit strength of issuers is a key
driver of covered bond credit quality, and
the main trigger for declines in covered
bond credit quality that have been seen so
far, it added.
5+ûCOVEREDûBONDSûWILLûCONTINUEûTOûBENElTû
from their high ranking in banks’ liability
structures in resolution.
“Although the RFB creditors will not have
quite the same access to bail-in-able capital
to absorb losses, covered bond holders’
protection from bail-in will limit their
exposure to bank defaults and losses in
resolution,” the Moody’s analysts said.
HIGH-YIELD
UNITED STATES
STRONG DEMAND FOR TRIPLE CSInvestors piled into Triple C bonds backing
M&A deals for cable provider RCN TELECOM
SERVICES and restaurant chain ARBY’S last
week, hoping to juice up returns amid
positive sentiment for risk assets.
Fast-food chain Arby’s on Thursday priced a
53MûEIGHT
YEARûBONDûTOûHELPûlNANCEûITSû
acquisition of Buffalo Wild Wings at a yield of
just 6.75%, the tight end of price talk and 75bp
inside initial whispers of 7.50%-7.75%.
“I think the royalty stream is attractive,
and it’s a high-margin business,” one
portfolio manager told IFR of the trade,
praising the good track record in the sector
of Roark Capital Group, Arby’s private
equity owners.
Arby’s aggressive tightening followed the
pricing inside 7% the day before of another
PUREû4RIPLEû#ûISSUEû
ûAû53MûlVE
YEARû
issue for internet and cable provider RCN.
RCN managed to price its deal - which will
HELPûlNANCEûTHEûACQUISITIONûOFû7AVEû
Broadband - at a yield of 6.875% - the tight
end of talk and tight to whispers of 7%-
7.25%.
h4HEREûISûAûMIXûOFû4RIPLEû#ûCOMPANIESû;INû
the market] and maybe they are a bit over-
leveraged at this stage in the cycle,” said
Tom Stolberg, a portfolio manager at Loomis
Sayles. “But some of them are actually pretty
good.”
)TûWASû2#.SûlRSTûTRADEûSINCEûAûDEALûINû
January 2017 that funded its acquisition by
PRIVATEûEQUITYûlRMû40'
But the soft performance of a 6.625% 2025
note that was issued in that deal - it is now
trading at 97 cents on the dollar - gave some
investors reason for pause.
Others had reservations about the
company’s ability to reduce leverage, given
that RCN faces lower margins than the
better established cable providers it is trying
to displace.
Like other so-called overbuilders, RCN has
increased market share by penetrating
mostly urban areas already served by larger
incumbents and relying on some of the
existing infrastructure.
“I don’t think investors are being
compensated for the risk,” one of the
sceptical investors told IFR.
“RCN is still facing intense competition in
their geographic regions, and it is a fairly
high capex business.”EUROPE/MIDDLE EAST/
AFRICAMATALAN AND PURE GYM DEMONSTRATE
UK CONSUMER APPETITEMatalan and Pure Gym offered some of the
highest levels on sterling paper over the
past year, as leads sought to lure yield-
starved investors into the troubled British
retail sector.
MATALAN cast off the cloak of gloom that
has shrouded the UK retail market in recent
weeks, raising £480m across two tranches at
much tighter yields than initial levels on
books of around £1.2bn.
4HEûTRADESûSUCCESSûDElEDûTHEû
expectations of market participants, who
had thought the UK discount retailer mightnot launch after a turbulent week saw the
bonds of British retailers New Look,
Debenhams and House of Fraser plummet.
-ATALANûPRICEDûaMûlVE
YEARûNON
CALLû
TWOûlRST
LIENûSECUREDûNOTESûATûûANDû
£130m six-year non-call three second-lien
secureds at 9.5%, inside talk on both
tranches.
4HEûlRSTûLIENSûWEREûUPSIZEDûBYûaMûATû
the expense of the second liens.
0RICINGûCAMEûINSIDEûûAREAûTALKûONûTHEûlRSTû
liens and 9.875% area on the second. Initial
WHISPERSûWEREûHIGHûSLOWûSûONûTHEûlRSTûLIENSû
and high 9s/low 10s on the second liens.
“Because it’s UK retail, it’s offering a yield
pick-up more than anything else,” said a
LEAD ûCONlRMINGûEARLIERûVIEWSûTHATûTHEû
chunky yields compensated for a sector that
has had alarm bells ringing.
-ATALANSûlNANCIALSûARE ûHOWEVER û
heading in the right direction. In results
released on Monday morning in conjunction
with the deal announcement, Matalan’s
Ebitda jumped to £44.9m for the 13 weeks
ending November 25, while it generated
%BITDAûOFûaMûINûTHEûlVEûWEEKSûTOû
December 30, compared with £35.1m and
£19.3m for the same periods in 2016.
“That’s more of a reason it came this
week,” the lead said. “If we look at their
numbers compared to New Look andALL US$ DENOMINATED HIGH-YIELD BONDS
BOOKRUNNERS – 1/1/2018 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)
1 Citigroup 13 1,312.80 9.6
2 JP Morgan 9 1,166.71 8.5
3 Wells Fargo 10 1,106.53 8.1
4 BAML 11 1,104.99 8.1
5 Goldman Sachs 7 985.58 7.2
6 Morgan Stanley 7 828.08 6.0
7 Deutsche Bank 7 674.07 4.9
8 BNP Paribas 3 604.70 4.4
9 HSBC 8 506.93 3.7
10 MUFG 3 391.47 2.9
Total 25 13,719.67
Including US domestics, Euro, foreign, globals. Excluding equity-related debt.
Source: Thomson Reuters SDC code: B5ALL NON-DOLLAR DENOMINATED HIGH-YIELD BONDS
1/1/2018 TO DATE
Managing No of Total Share
bank or group issues €(m) (%)
1 Barclays 2 126.70 20.0
=1 Credit Suisse 2 126.70 20.0
3 RBC 1 81.70 12.9
=3 ING 1 81.70 12.9
=3 Jefferies 1 81.70 12.9
6 NatWest Markets 1 45.00 7.1
=6 HSBC 1 45.00 7.1
=6 Lloyds Bank 1 45.00 7.1
Total 2 633.51
Excluding equity-related debt.
Source: Thomson Reuters SDC code: B6