IFR Magazine - October 27, 2018

The deadline for the bond exchange had
BEENûSLATEDûFORû.OVEMBERûû"UTû$ISNEYûSAIDû
ONû-ONDAYûTHATûISûLIKELYûTOûBEûEXTENDED
&OXûISûRATEDû"""ûANDûBONDHOLDERSûWOULDû
BEûEXCHANGINGûUPûTOû$ISNEYSû!!!ûRATINGSû
ONûITSûSENIORûUNSECUREDûLONG
TERMûDEBT
That bump-up is what convinced
investors to pass the vote so early ahead of
THEûACQUISITIONûTHOUGHûTHEYûMIGHTûNORMALLYû
HAVEûPREFERREDûOTHERWISE
The acquisition is expected to close in the
lRSTûHALFûOFû
“Investors would prefer to have the
regulatory uncertainty of the acquisition
gone and complete the exchange once the
DEALûHASûCLOSEDvû"ERLINûSAID
Citigroup and JP Morgan are lead dealer
MANAGERSûONûTHEûEXCHANGE

EUROS

AIR GROWS THIN FOR TRIPLE Bs IN
POST-QE WORLD

3WINGINGûSTOCKSû)TALIANûVOLATILITYûANDû"REXITû
roadbumps are making investors
increasingly selective when it comes to
PICKINGûTHEIRûSPOTûINûTHEû%UROPEANû
INVESTMENT
GRADEûMARKETûMEANINGûLOWER
RATEDûISSUERSûCOULDûFACEûANûUPHILLûSTRUGGLE
PROCTER & GAMBLEû!A!!n ûWASûTHEûLATESTû
ISSUERûTOûGATHERûBUMPERûDEMANDûTHEûõBN
PLUSûBOOKûFORû7EDNESDAYSûõBNû
three-parter allowing it to pay just mid-
SINGLE
DIGITûPREMIUMSûACROSSûTHEûBOARD
4HEûõMûSIX
YEARûSLICEûCAMEûATûAûSKINNYû
BPûOVERûSWAPSûWHILEûTHEûõMû
YEARû
PRINTEDûWITHûAûSUB
ûYIELD
The warm reception contrasted sharply
WITHûTHATûFORû2#)û"ANQUEû"AA""" ûWHICHû
was forced to cancel a sterling trade mid-
EXECUTIONûTHEûWEEKûPRIORûALTHOUGHûOTHERû
FACTORSûWEREûALSOûATûPLAY
h)NûTHISûMARKETûTHEREûISûMUCHûMOREû
discrepancy between how different credits
AREûPERFORMINGûINûPRIMARYvûAûSYNDICATEû
BANKERûSAIDûh)TSûHEALTHYûnûTHEûRISKû
PREMIUMûHADûVANISHEDûFROMûTHEûMARKETv
Lower Triple Bs are having to pay bigger
PREMIUMSûTOûLUREûINVESTORSûINûUNLIKEû3INGLEû
!ûCREDITSûWHEREûTHEûBALANCEûOFûPOWERûISûSTILLû
TIPPEDûINûFAVOURûOFûISSUERS
70û#AREYû"AA""" ûFORûEXAMPLEûHADûTOû
OFFERûAûBPûCONCESSIONûTOûGETûITSûõMû
YEARûAWAYûEARLIERûTHISûMONTH
h)TSûFEASTûORûFAMINEvûONEûSYNDICATEû
BANKERûSAIDûOFûTHEû2#)ûDEAL
0'ûTHEûWORLDSûLARGESTûHOUSEHOLDû
PRODUCTSûMAKERûMIGHTûBEûANûEXCEPTIONALû
CASEûnûITûHASûAûMARKETûCAPITALISATIONûOFûMOREû
THANû53BNûANDûISûONEûOFûTHEûMOSTû
DIVERSIlEDûCOMPANIESûINûTHEûWORLDû"UTû
Green bonds from SCHIPHOLû!! ûANDûENBW
!!n!n ûALSOûRECEIVEDûSTRONGûDEMAND

h4HERESûAûmIGHTûTOûQUALITYvûAûLEADûBANKERû

ONû0'ûSAIDûh)NVESTORSûAREûLOOKINGûATû)TALYû

ANDûDOOMSDAYûSCENARIOSv

GOOD TIMES END

"ANKERSûSAYû%#"ûBONDûBUYINGûHASûPROPPEDû

up the corporate market over the past two

YEARSû4HEûCENTRALûBANKûHASûPURCHASEDûMOREû

THANûõBNûOFûPAPERûSINCEûTHEû#300û

STARTEDûINû*UNEûû2ISKIERûBORROWERSûHAVEû

BEENûTHEûMAINûBENElCIARIESûTHEYûSAID

4HEû%#"ûISûDUEûTOûENDûITSûPURCHASESûINû

$ECEMBERûANDûTHEûMARKETûISûALREADYûSEEINGû

SOMEûOFûTHEûEFFECTSûOFûTAPERING

h$URINGû1%ûITûDIDNTûMATTERûWHETHERûAû

BORROWERûWASû4RIPLEû"ûORû$OUBLEû"ûnûTHEYû

PAIDûTHEûSAMEû7HEREûISûTHEûRISKREWARDû

THEREvûTHEûlRSTûBANKERûSAID

“Some borrowers’ deals were rated Triple

"ûWHENûTHEYûREALLYûSHOULDNTûHAVEûBEENûnû

LIKEûCYCLICALSûANDûREALûESTATEûCOMPANIESûWHOû

only came into the market because of the

#300v

Bonds are now seeing a wider dispersion

OFûSPREADSûDOWNûTHEûCREDITûSPECTRUM

4HEû"""!ûNON

lNANCIALûSPREADûRATIOûHASû

INCREASEDûTOûXûFROMûXûOVERûTHEûPASTû

FEWûMONTHSûACCORDINGûTOû*0û-ORGANû

ANALYSTSûWHOûTHINKûTHATûDECOMPRESSIONû

COULDûHAVEûFURTHERûTOûRUNûACCORDINGûTOûANû

/CTOBERûûREPORT

h#300ûTAPERINGûISûDRIVINGûAûREVERSALûOFûTHEû

@SEARCH

FOR

YIELDûWHILEûTHEûHIGHER

RATEDû

space has also been well supported by

Continental insurance buying on higher

RISK

FREEûRATESûANDû!SIANûDEMANDûONûHIGHERû

DOLLARûHEDGINGûCOSTSvûTHEûANALYSTSûWROTE

The lower-rated notes are particularly

SUFFERING

&ROMû!nûTOû"""ûINVESTORSûEARNûBPûOFû

additional spread for each rating notch

DOWNWARDSûACCORDINGûTOû*0-ûDATAû"UTûBETWEENû

"""ûANDû"""nûTHEREûISûAûBPûPREMIUM

!TûTHEûSTARTûOFûTHEûYEARûITûWASûBPûPERû

NOTCHûFROMû!nûTOû"""ûANDûBPûFROMû"""ûTOû

"""n

7HILEûLOWER

RATEDûNAMESûAREûNOTûSHUTûOUTû

OFûTHEûMARKETûASûSUCHûBANKERSûSAYûTHEYûMAYû

have to take a more defensive approach to

TENORSûANDûCONCESSIONS

!NûUPCOMINGûDEALûFROMûCHEMICALSû

company CELANESE US HOLDINGSûRATEDû"AA

"""nûCOULDûPROVEûTOûBEûAûGOODûTESTûOFû

APPETITEûINûTHEûINVESTMENT

GRADEûMARKETû

TWOûBANKERSûSAID

4HEûCOMPANYûISûPLANNINGûAûõMûlXED

rate offering with a long eight-year

MATURITY

Celanese moved from junk to investment-

grade in 2016 and does not have a large

OUTSTANDINGûCURVE

!NDûWHILEû-OODYSûPUTûITSû"AAûRATINGûONû

POSITIVEûOUTLOOKûEARLYûLASTûWEEKûLEADSûSAYû

they are in no rush to price the deal if the

MARKETûLOOKSûCHOPPY

h3CHIPHOLû%N"7û0'ûAREûALLûCOMPANIESû

with very strong ratings and good

FOLLOWINGSvûAûBANKERûFAMILIARûWITHûTHEûDEALû

SAIDûh9OUREûNOTûTESTINGûTHEûMARKETûWITHû

ANYûOFûTHOSEûNAMESv

PROCTER & GAMBLE CLEANS UP

PROCTER & GAMBLE swept through the market

ONû7EDNESDAYûASûINVESTORSûPLACEDûORDERSûOFû

OVERûõBNûFORûITSûõBNûTRIPLE

TRANCHER

4HEûPAPERûFROMûTHEûMAKERûOFû!RIELû

detergent and Oral-B toothpaste was

gobbled up by bond buyers looking to step

up in quality in a market roiled by swinging

STOCKSûANDû)TALYûANDû"REXITûROADBUMPS

h)TSûAûCRACKINGûNAMEûFORûTHISûMARKETvûAû

BANKERûAWAYûSAID

0'ûRATEDû!A!!

ûSTRETCHEDûOUTûTOûAû

year maturity - its longest foray in the euro

BONDûMARKETûSINCEûûACCORDINGûTOûAûLEADû

MANAGER

!ûNUMBERûOFûISSUERSûHAVEûSKEWEDûTOWARDSû

the longer end in recent weeks to meet an

increasing yield bid from pension funds and

INSURANCEûMONEY

0'ûAPPROACHEDûINVESTORSûWITHûSIXûû

ANDû

YEARûTENORSûINITIALLYûMARKETEDûATû

MID

SWAPSûPLUSûBP

BPûBP

BPûANDû

BP

BPûRESPECTIVELY

Demand allowed leads CitigroupûGoldman

Sachs and HSBC to slash those spreads by up to

BPûFROMûTHEûTIGHTûENDûOFû)04Sû4HEYûLATERû

LAUNCHEDûANûõMûSIX

YEARûATûAûSKINNYû

SPREADûOFûMID

SWAPSûPLUSûBPûANûõMû

YEARûATûBPûANDûAûõMû

YEARûATûBP

4HATûMEANTû0'ûENDEDûUPûPAYINGûAûPREMIUMû

OFûONLYûBPûBPûANDûBPûFORûTHEûRESPECTIVEû

TRANCHESûCOMPAREDûWITHûITSûOUTSTANDINGûCURVEû

ACCORDINGûTOû)&2ûCALCULATIONS

!ûLEADûSAIDûTHEûPREMIUMûLOOKEDûMOREûLIKEû

BPûFORûEACHûTRANCHE

h4OûDOûõBNûANDûNOTûPAYûAûPREMIUMûTOû

GETûTOûTHATûSIZEûISûQUITEûSOMETHINGvûHEûSAID

)NûADDITIONûTHEû

YEARûSLICEûACHIEVEDûAû

YIELDûOFûBELOWû

“That was pretty outstanding - especially

in an environment where 24 hours prior

people were talking about how ugly the

MARKETûWASvûTHEûLEADûSAID

4IMINGûWASûONû0ROCTERûû'AMBLESûSIDEû

the deal came to market days after the

company reported better than expected

QUARTERLYûPROlTSûANDûSALESûANDûSAIDûITûWASû

raising prices on several products around

THEûWORLDû2EUTERSû.EWSûREPORTED

4HEûRESULTSûSAWû0'ûSHARESûJUMPûûONû

/CTOBERûûINûTHEIRûBIGGESTûONE

DAYûGAINûINûAû

DECADE

!NDûTHEûBUYSIDEûWELCOMEDû7EDNESDAYSû

BONDûWITHûOPENûARMSûDESPITEûSOMEû

CONCERNSûABOUTûPOTENTIALûBREAK

UPûRISK

h/PTICALLYû0'ûLOOKSûVERYûSAFEûBUTûWEVEû

seen a trend with these massive

CONGLOMERATESûWHICHûWEREûHISTORICALLYûVERYû

BONDS CORPORATES