BAT, RCI and Deutsche Bahn keep Europe humming

BAT, RCI and Deutsche Bahn keep Europe humming

The pace of issuance in Europe’s corporate bond market quickened today as five deals totalling €3.4bn were launched in euros. “We’re running out of windows for this year,” said one banker, who expected issuance to stay busy.

Deutsche Bahn, the German state-owned railway group, echoed IBM in some observers’ views by pricing its deal very tightly and attracting only a slightly oversubscribed book.

Bankers away from the deal said the €400m 10.25 year bond via JP Morgan, LBBW, Mizuho and Société Générale had pulled €500m of orders, suggesting that its coupon of 2% and spread of 38bp over mid-swaps, only 2bp inside starting guidance, had left nothing on the table.

But there were murmurs of approval for British American Tobacco, which sold a benchmark 10.2 year bond that grew to €750m, and for RCI Banque, the car finance arm of Renault, which also raised €750m with a two year bond.

“The standout deal today is probably RCI, because it’s a yieldier transaction, they haven’t come for a while, and this had a relatively tight new issue premium of about 30bp on the initial guidance,” said a banker away from the deal, adding that the bond had attracted a book of about €2.2bn.

Rated Baa2/BBB with negative outlooks, RCI is viewed as in much better health than its rival Banque PSA, finance arm of Peugeot Citroën, but still the French car industry is not in its best shape ever.

Bank of America Merrill Lynch, BBVA and Mitsubishi UFJ Securities International launched the two year note at an initial price thought of 190bp-195bp over mid-swaps. The first revision knocked 10bp off that range, and the bond was priced at 178bp over.

“The new issue premium was about 13bp-18bp in the end,” said one banker, “but two years is a bit of a sweet spot, we’ve seen a lot of buying there.”

Another saw the pick-up as about 15bp.

BAT enjoys a keen following as an infrequent issuer, and because the tobacco sector is well liked by both bond and equity investors as stable and defensive.

The UK cigarette maker, rated Baa1/A-/A- with stable ratings, has also recently been upgraded.

BNP Paribas, Lloyds, Santander and SG launched the 10.2 year (January 2023) bond with an initial price thought of 80bp-85bp over mid-swaps and priced it at 75bp, or 109.7bp over Bunds. With a 2.375% coupon, it yields 2.446%.

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