Rating: Aa2/AA- Amount: $250m
Maturity: June 25, 2009
Issue price: 99.875
Fixed re-offer price: 98.30
Coupon: 5%
Spread at re-offer: 93bp over the 4.375% May 2007 UST
Launched: Tuesday June 11
Lead mgr: TD Securities
Bookrunner's comment:
The rationale behind the deal was the demand for high grade government-type credit, with virtually zero risk.
The borrower's global bonds in the secondary market are trading at Libor minus 10bp-12bp. This deal was launched at Libor minus 2bp and had a fairly solid, professional syndicate.
Flows were light on the first day, with paper going into Italy, Switzerland, the Benelux, Austria and the UK. The bond is now trading at Libor flat and we have done half the trade.
Market appraisal:
"...this is top quality credit with a good pick-up and virtually zero risk.
We were in the group for the Benelux investors. The deal was probably launched slightly wide of where it should have come. It needed a bigger coupon to really attract retail investors."
"...seven years is the wrong maturity and the pricing only looks good against global provincial deals, which are a completely different kettle of fish, being three or four times larger. The British Columbia 2008 global, for example, is a $750m issue and trades at Libor minus 8bp or 9bp and the $1.25bn Ontario 2008s trade in the same region and are far more liquid. So the potential for switches is non-existent even if there is a pick-up of 9bp or 10bp.
Retail are unlikely to go out to seven years so I think it will take a very long time to place this transaction.
We calculated the re-offer to be Libor flat so the borrower would have got around plus 6bp. This then is a deal that provides BC with good funding of 2bp better than its domestic levels, but it offers very little value to the market."
"...BC is a good name and it has issued successfully in shorter maturities, but seven years is too long for retail. However, the pricing is reasonable and it should find some demand, primarily from smaller institutions."