Italian issuers are set to flood the market with up to 10 high-yield sales next year after just one this year. The expected increase is part of a continuing fallout from the collapse of Parmalat, which closed off the domestic retail investor base to issuers and is forcing companies to borrow through rated securities.
Borrowers including internet provider Tiscali, holiday and package tour operator Viaggi del Ventaglio and recycled cardboard manufacturer Reno de Medici are likely to lead the high-yield charge in the first half of next year. Along with these unrated, mid-sized companies, auto giant Fiat with its double-B minus rating, is also expected to come to market. Italian construction company Impregilo was also seen as a likely borrower but its ability to raise debt is now seen as remote given last week's allegations of fraud at the company. Officials from the companies did not return calls by press time.
The deals have not yet been mandated, but bankers in London speculate Goldman Sachs has a leg up on the Tiscali deal, while Deutsche Bank is the odds-on favorite for Ventaglio and BNP Paribas and/or Citigroup will likely win the Impregilo nod. Credit Suisse First Boston underwrote Fiat's €1.3 billion high-yield offering last April, but officials there say Fiat has not mandated a further high-yield deal.
London-based investors are potentially interested in high-yield out of Italy, but say the attractiveness of the deals will depend on how they are structured, rated and priced.
The deal that opened the Italian corporate high-yield market in October with a €150 million eight-year non-call bond underwritten by Merrill Lynch, by fashion house IT Holding, was delayed, shrunk and priced below guidance (BW, 10/25), but investors said this is not a reflection of appetite for the broader Italian market.
Funding for corporates through Italian banks dried up after investors suffered severe losses on investments in Parmalat and food and beverage group Cirio in 2003 and 2002, respectively. Prior to those blowups, Italian corporates were in the habit of issuing unrated bonds through their local banks to retail clients. This is no longer an option, and these same corporates are now being encouraged to consider the high-yield market as an alternative.
