A trio of European high-yield deals were pulled last week and a proposed E1.6 billion offering by German chemicals group Celanese looks increasingly likely to be placed entirely in the U.S. as the outlook for European junk deteriorates. High-yield markets in Europe have come under pressure in the last two weeks as the Federal Reserve moves closer to raising interest rates and hedge funds, which comprise a larger proportion of the junk investor base in Europe than in the U.S., have been selling high-yield holdings to cover recent losses in emerging markets.
"It's been like a perfect storm in Europe, with U.S. investors pulling back, pressure from hedge fund selling, and record new high-yield issuance over the past three weeks," said Jim Amine, head of European leveraged finance at Credit Suisse First Boston in London. Most dedicated high-yield investors now see the primary market as too unstable, in light of recent new issues having traded off after pricing.
The most recent deals to stumble are a E500 million seven-year offering by Anglo-Dutch steelmaker Corus, a $325 million euro equivalent Samsonite issue and a $550 million euro equivalent offering of eight year bonds by UGS PLM Solutions, a software and services company.
"Conditions in the debt markets have worsened significantly since we announced the deal at the end of April, and we did not consider it cost effective to pursue the offering at this time," said Mike Hitchcock, spokesman for Corus. CSFB, the lead manager on the deal, advised Corus to wait until markets improve, he added.
Meanwhile, bankers expect Celanese's proposed euro issue to be placed in the U.S. While the U.S. high-yield market has also traded off, the investor base is broader and deeper than its European equivalent. "Deals can get done in the U.S. even in the worst conditions, because you have investors there who are experienced at investing through the cycle," said CSFB's Amine, pointing to value investors who still see buying opportunities in tough markets. Anthony Barklam, head of corporate syndicate at Morgan Stanley, which is underwriting the issue, declined to comment on Celanese in particular or on prospects for jumbo deals in Europe more generally. Celanese officials could not be reached for comment by press time.
The turmoil follows a recent decision by German chemicals company Brenntag to pull a Goldman Sachs' led junk offering because investors demanded an 11% coupon (BW, 5/17).
