Nobody wants to see a pulled deal, except, perhaps, the fine upstanding members of the financial press. Bad news, notoriously, sells papers. But everyone else wants to see a smoothly functioning bond market, where risk is priced properly, borrowers access capital, and investors allocate funds appropriately.
A pulled deal is none of these things — it’s a waste of time for borrower, syndicate and investors alike. It may have come with costly legal and documentary prep, along with, perhaps, a roadshow on top.
Having wound themselves up to execute a slug of funding, or, as with Swiss telecoms firm Salt, a full refinancing of its capital structure, postponement can be embarrassing. No treasurer wants to explain to their CFO that they couldn’t get a deal away after all that work.
There’s been a rash of such apparent failures recently. In the high yield market, Salt Telecom, Greek real estate firm Pangea, Spanish construction firm Aldesa, and UK oil and gas firm Ithaca Energy all pulled deals.
In the IG market, German media company Bertelsmann and US white goods firm Whirlpool pulled deals, largely in the teeth of volatility driven by Italian politics, while many more issuers have marketed new bonds but are yet to launch in the market.
EM issuers Atrium Real Estate and EPP, a Polish real estate company, have also fallen victim to the pulled deal trends, while go or no-go calls seem to more frequently end with the latter verdict at the moment.
But it’s time to ditch the idea that it’s a shameful thing to pull a deal, demonstrating the failure of a hubristic treasury team, supine syndicate advice and poor market knowledge.
In fact, bankers expected this to happen. The combination of the MAR, which came into force in July 2016, and the slowing or withdrawal of central bank stimulus, was always going to create choppier, less certain markets.
Banks are less willing to deploy balance sheet, across all areas of their business. CEOs still talk up their commitment to the primary markets, but that doesn’t mean they want trading desks to load up on primary issues, nor syndicate desks to end up buying residuals, or bridges to stay hung.
But if banks aren’t willing to pay, neither are issuers. Only in exceptional circumstances will they pay for hard underwriting. Better to wait on the sidelines, or even pull a deal once launched, rather than cough up to force an expensive trade over the line.
On top of that, add regulation. Even if there’s a trade available, MAR makes it harder than ever to figure out where it should come.
It’s not that wall-crossing to get an investment grade corporate deal away was especially prevalent before MAR came in, but it adds bureaucracy and complicates the communication between investors and syndicate.
MAR may also have forced issuers to break cover earlier than in the past. The “non-deal roadshow”, for many issuers, has died a well-deserved death, and now, usually, issuers explicitly flag their intentions on maturity, currency and structure, creating a longer, larger, more visible pipeline of new issues than before the regulation came in.
Now, nobody wants to wait on the sidelines forever. Quarterly reporting, holidays, central bank meetings and data all limit issuance windows, and once an issue is ready to go, all things being equal, it’s better to get something done.
But not at any price. For frequent issuers, or those most focused on raising marginal funding at optimal cost, rather than pushing out a strategic trade, where’s the harm in sticking a trade out there?
Certainly, it’s better to take detailed advice and be certain something will work, but in a choppy market, why not take a look?
There’s some chance that a pulled deal means the next issue comes cheaper as treasurers and syndicates take a more conservative approach, but so what? Risk is the stuff of capital markets.
It’s a perfectly reasonable approach to try a tight deal, knowing that it could go wrong and you’ll do a cheap deal later. Different funding teams adopt different strategies.
What we, as a market, need to be careful of, is the soft sense of public embarrassment (and, ahem, the potential for a roasting in the press) that usually goes with pulled deals. This discourages treasurers and banks from pushing hard and trying ambitious deals to achieve the best funding, and it’s not justified.
A pulled deal is a mistake, and better avoided, but one that we should stop judging so harshly.