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Autostrade’s Eu6.5bn deal blazes trail for corporates

Autostrade will today (Friday) price Eu6.5bn of bonds in euros and sterling ? the largest corporate bond issue of the year and the first big multi-tranche offering since Telecom Italia?s Eu3bn deal in January.

After months of disappointment in the European corporate bond market, in which slack issuance was compounded by softness in spreads and investors? reluctance to buy, the bond is a welcome sign that for the right credit, and particularly for a large deal, there is no shortage of appetite.

Bookrunners Barclays Capital, Goldman Sachs, Mediobanca and UniCredit Banca Mobiliare have gathered over Eu9bn of bids from 600 investors for the four tranches of bonds.

The transaction is the first from Italy?s largest toll motorway operator since it launched the first Eurobond, for $15m, nearly 41 years ago.

Almost half the A3/A rated deal will come in a Eu2.75bn 10 year fixed rate bond, set to be priced at 70bp over mid-swaps, the tight end of the 70bp-75bp guidance.

The Eu2bn seven year floating rate note proved just as popular and came at three month Euribor plus 48bp ? inside the 50bp-55bp talk.

The longer dated euro tranche, a Eu1bn 20 year, will be priced at 95bp over mid-swaps, directly in line with guidance.

In sterling, a £500m 18 year bond is set to price at 80bp over mid-swaps ? the tight end of the 80bp-85bp guidance.

Barclays and Goldman led the sterling tranche on their own, while Calyon and Invercaixa joined the four bookrunners on the seven year FRN.

?The transaction has gone extremely well,? said Marco Baldini, a syndicate official at Barclays Capital in London. ?The   market supported a Eu6.5bn deal, the maximum size we were looking for, with orders totalling well over Eu9bn from around 600 investors.?

Autostrade was targeting a size of Eu3bn-Eu6.5bn, planning to raise as much of this as possible in euros and sterling and tap the dollar market for the balance.

However, the strong response from the European market meant the company had no need to access the dollar sector. Lehman Brothers and Merrill Lynch are believed by other bankers to have held the mandate for the dollar bond.

Baldini said the deal succeeded largely because of the inherent stability of the credit. ?This is exactly the kind of credit the market is looking for. The company has stable cashflows, with long term concessions, steady traffic growth predicted in Italy over the coming years and a supportive regulator in Italy.

?Autostrade is the sole toll road operator, with an unrivalled position, and its single-A ratings appealed to a wide range of investors.?

Baldini said the eight day roadshow, during which the company visited 13 cities, was the best attended roadshow he had seen since E.on?s transaction in 2002.

?The management team made a convincing presentation,? said Volker Marnet-Islinger, head of corporate bonds at Cominvest Asset Management in Frankfurt. ?The credit is a predictable one, with the right metrics as well as revenues and revenue growth, and its costs are predictable.?

Marnet-Islinger said that although the company?s net debt was high and unlikely to fall over the next few years, due to its Eu11bn of planned investments, the pricing of the bonds was attractive.

?We participated in the 10 year fixed rate tranche, which compared favourably to the Portuguese toll road operator Brisa?s 2013s, which were trading at around 45bp-48bp over swaps.?

Etienne Gorgeon, a portfolio manager at Axa Investment Managers in Paris, agreed that the bonds offered value, though he compared them instead with the Spanish toll road operator Abertis, which is in the same rating category and has a nine year bond that is 42bp bid.

?Vinci, the French equivalent to Autostrade, has a five year that trades at 45bp over swaps,? said Gorgeon. ?And Cofiroute, which has an A+ rating compared to Autostrade?s A, has a 14 year at 37bp over swaps.?

Although the price talk on Autostrade appeared generous against these comparables, the company?s high debt made it fair value, even though it is in a low-risk industry.

?The company is relatively highly leveraged and the capital expenditures it has planned over the next eight years means that the credit is unlikely to improve from a fundamental perspective,? said Giuseppe Quarto di Paolo, a fund manager at Credit Suisse Asset Management in Milan.

?There is not much upside but the price talk is fair in view of fundamentals, and as a large deal it will take up a significant part of the index. If investors are not negative on the credit, they have to get involved.?

The seven and 10 year tranches proved the most popular, attracting roughly Eu7.5bn of orders in near equal amounts, as investors worried about interest rates piled into the FRN and avoided going too far along the credit curve.

Orders for the longer dated tranches were more modest, at around Eu1.3bn for the 20 year and over £650m for the £500m 18 year tranche.

The book for the 10 year tranche by orders as of yesterday (Thursday) night showed a strong domestic bid for the transaction, with Italy taking 40%, Spain 14%, the UK around 11%, Germany 7%, Portugal around 6%, the Netherlands 4% and Luxembourg 3.5%. The other 14.5% was sold across the rest of Europe, offshore US and Asia.

Asset managers placed around 34% of the orders for the 2014s, banks accounted for 25% of demand and insurance companies and pension funds 24%.

Autostrade was landed with Eu6.7bn of debt when it was taken over early last year by its core shareholder, the Benetton family?s holding company Schemaventotto. In September 2003, Autostrade merged with Newco28, Schemaventotto?s takeover vehicle.

This debt was refinanced with Eu8bn of longer term facilities raised in November 2003. The capital markets and bank facilities were fully drawn for Eu6.5bn in November last year.

Although Autostrade faces no immediate refinancing risk until 2007, when it has to begin repaying its existing bank facilities, the success of this multi-tranche offering should ease much of that risk.

Autostrade has secured a 9-1/2 year facility of roughly Eu3.5bn to support its Eu6.5bn corporate bond. 

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