Europe’s syndicate bankers breathed a sigh of relief after off-the-run US-Irish issuer Johnson Controls International got what looked to be a solid trade away on Thursday, despite the fear that investors were only looking to buy frequent issuers with little credit work needed.
Fire, ventilation and security conglomerate Johnson Controls, rated Baa2/BBB+/BBB, opened books on a September 2028 trade at 135bp-140bp over mid-swaps via BBVA, JP Morgan and UniCredit.
“It’s not the most obvious name,” said a syndicate banker in London at the stage of initial price thoughts. “We’re watching to see how this goes. The market is looking more conducive than it was on Monday but it still might be a push.”
On Monday, British Telecommunications struggled to connect with investors for a €1bn dual tranche trade, with multiple market sources pointing to worries about France’s Altice substantially increasing its ownership in the company as a key reason.
Johnson Controls revised guidance for its deal to 110bp-105bp over mid-swaps before launching the deal at the tight end of guidance.
“A 30bp move on the spread is pretty good for an off the run company,” said a syndicate banker in France. “We don’t get to see the book [because the deal is SEC-registered] but it is a good move in spread.”
The market was more stable on Thursday than it was at the start of the week, with the IHS Markit iTraxx Europe Main tightening back down to 107bp after reaching 110bp on Monday, and the Crossover just 6bp off Friday’s close at 530bp.
Johnson Controls was last in the euro market in September 2020, when it printed €1bn split evenly across seven and 12 year tranches.
The borrower has headquarters in Ireland but is seen as a US company.
No Yankee rush
Despite Johnson Controls’ getting a decent trade away, there is not expected to be an influx of US high grade corporates raising euro debt.
“Execution conditions in the US over the past couple of months have been much more stable and predictable,” said a DCM banker. “The extra cost for larger size and liquidity is worth it in the dollar market.”
However, the banker noted that “I can’t discount there will be opportunistic arbitrage, but the European market has been much more exposed to the energy crisis. It hurts continuity.”
A second banker agreed with this, adding that “there’s no need for them to come to euros. Dollars is showing us up a bit at the moment.”