GECC issued almost $10bn of bonds this week and debuted in two new markets, as it continues with its plan to raise a total of $75bn-$95bn by the end of this year. Its onslaught began early in the week, when it issued $6bn of resettable, puttable floating rate notes maturing in 2007 but with the option to extend every year after the first 13 months.
In Europe, GECC launched its biggest ever euro funding with Eu2bn of five year fixed notes and Eu1bn of two year floating rate notes.
It then capped off the week yesterday (Thursday) by issuing its first US retail bond - a $1bn 30 year non-call five domestic instrument.
Its efforts this week take its capital raising so far this year to around $58.3bn. A staggering $17.4bn has been raised in the last fortnight: a $6bn global on May 31, a ¥200bn Samurai in the first week of June, and this week, $9.8bn worth of deals.
The two dollar deals this week signalled moves by GECC to diversify its investor base to take pressure off the institutional investor-driven term debt markets.
"Given that this year is a very unusual year for us in terms of the volume we need to raise, we want to be very careful that we do not inundate any one sector," said Kitty Yoh, GECC's head of long term funding.
"By tapping into an entirely new segment, we prevent the risk of over-burdening any one market segment. It diminishes the risk that our bonds will have bad spread performance."
Normally GECC raises about $30bn-$40bn a year. This year, GECC's needs have risen because of its objective to reduce outstanding commercial paper from $117bn at the end of last year to around $85bn by the end of this year.
Yoh said GECC will now ease off on bond issuance for a while to help markets absorb its paper.
"We are now pretty much done for the second quarter and that will allow most of these transactions space to perform and hopefully to tighten in and leave investors ultimately feeling good about our deals," she said.
The euro deal was the week's most controversial. In a highly unusual move, Morgan Stanley, brandishing a big reverse enquiry for two year GECC paper, leveraged its way into the bookrunner group of BNP Paribas, Dresdner Kleinwort Wasserstein and Deutsche Bank.
The inclusion of the two year gave momentum to a deal that was originally marketed as a Eu3bn-Eu4bn five year at 30bp-35bp over mid-swaps. "Although we had a decent order book building, there was a lack of momentum in the deal," said one lead manager, complaining of soft markets at the beginning of this week.
Morgan Stanley then approached GECC with a large reverse enquiry for two year paper.
Fresh from its success with the $6bn resettable, puttable FRN, GECC decided to include a two year FRN and cut the maximum size of the deal from Eu4bn to Eu3bn.
The deal's momentum quickly picked up once the two year tranche was added and the overall size of the five year reduced.
"The two year floater flew out of the door," said one syndicate member. "We were sitting on a lot of orders from people who wanted to buy GE short dated paper and that gave the whole trade momentum and actually saved it."
The result was a Eu2bn five year deal, priced at 37bp over mid-swaps from a revised guidance of 37.5bp area and a Eu1bn two year floater priced at Euribor plus 18bp from guidance of Euribor plus 20bp.
Both tranches were ultimately well received by the market and tightened on the break. Also helping the deal was GECC's comment that it might not come back to the euro market for the rest of the year, and if it did, not until the fourth quarter.
GECC has gone to enormous lengths in recent months to be more transparent with investors world wide, giving them unprecedented detail on this year's funding strategy.
The company's dollar bonds are trading wider this year than last, an inevitable result of greater supply. Even so, all deals it has issued since its revamped relationship with investors have been well received by the markets.
The $1bn retail bond, for instance, was originally $500m in size and the $6bn resettable floater attracted more than $13bn of orders.
The retail bond is structured like an old-fashioned Eurobond, where the bookrunner (Citigroup/SSB) agrees to underwrite a certain size and then syndicates the bonds out to a large group of broker dealers around the country, who then sell the bonds to individual retail investors.
The deal has a coupon of 6.625% and was priced at par in retail denominations of $25.
A bond of $1bn is a large trade in the US retail market with the largest being a $1.4bn deal by Citigroup. Bankers believe the market is deep enough for GECC to do $1bn about every four months.
The $6bn resettable deal capitalises on the steady decline in GECC's outstanding commercial paper in that the money market funds that bought into it were those facing reduced supply of GECC's CP as the year progresses.
The deal has an initial maturity of 13 months - chosen because money market funds cannot buy anything that matures beyond 397 days.
The structure is one that has been popular among US borrowers for the last two to three years. Although it goes on the books as long term debt, it appeals to an entirely different investor base from those that normally buy five year bonds.
It has a final maturity of five years, but an initial maturity of 13 months, with the option for investors to extend for another year.
The coupon steps up every time the investor extends for another year. The first 13 months is priced at 3bp over Libor. If the investor extends for another year the price goes up to 8bp over Libor. Extensions into year three and four are priced at 10bp over Libor each and the final fifth year will pay out 12.5bp over Libor.
Investors like the deal because it offers a pick-up over GECC 18 month and two year paper trading at Libor flat.
