EnBW and Acea hit the bond market on Tuesday, continuing a run that has seen European high grade utility issuers cruise past the volumes seen in the early Januarys of the last few years.
Germany’s EnBW, rated Baa1/A-, offered the more ambitious deal. It opened books on a 5.5 year trade at 110bp-115bp over mid-swaps and a 12 year trade at 160bp-165bp over.
BNP Paribas, Commerzbank and Deutsche Bank were global coordinators. They were joined by active bookrunners BayernLB, BBVA, BNP Paribas, Commerzbank, Deutsche Bank, ING, SEB and SMBC.
EnBW’s 5.5 year started around 60bp wide of the issuer’s curve, while the 12 year began at 50bp wide, in part because EnBW’s curve is almost flat from October 2030 onwards. Fair value was interpolated because, until Tuesday, the issuer’s curve only ran to 2033.
Leads used deals from E.ON and Engie this month, which were trading at similar levels as EnBW’s12 year, as comparables.
The 12 year part of the curve is proving popular for utility issuers and investors. Bid to cover ratios for new deals in this tenor are averaging three times, compared to 2.5 times for shorter maturities.
A credit analyst at a European bank attributed the “high demand for long dated paper to liability-driven investing mandates”.
“The need to hold longer maturities, coupled with expectations of lower supply in that bucket might have been supportive for their strong demand so far this year,” they said.
Concession creep
But there are signs that the market is becoming saturated.
EnBW launched its €500m 5.5 year at 90bp over mid-swaps on the back of €1.1bn of orders. At that spread, the new issue concession looks to be around 30bp, which is on the high side for a corporate issuer this year, particularly one at the highly rated end of the investment grade spectrum.
Meanwhile, the issuer’s €750m 12 year continued the trend of tranches in this tenor getting more demand. It launched at 140bp over mid-swaps and took in €1.8bn of interest. At the final spread, it landed 26bp wide of EnBW’s curve.
Acea, the Italian multi-utility rated Baa2/BBB, also opened books on its eight year green bond at 165bp over mid-swaps. It tightened to 133bp over to launch a €500m deal on the back of €1.75bn of demand at guidance.
Bank of America, Goldman Sachs, IMI-Intesa Sanpaolo, JP Morgan and UniCredit ran Acea’s trade.
Powering up
Utility issuers had brought €10bn of deals by market open on Monday — €8bn more than the first fortnight of 2022 and well above the €2.4bn for the same period in 2021, according to ABN Armo.
And this week has seen €2.75bn more issuance from the sector, after Portugal’s EDP printed a €1bn green hybrid on Monday.
Green issuance has also increased dramatically. As of Monday’s opening, 65% of total utility issuance this month has been in green formats — a 27% increase from this time last year.
“We expect most supply from utility issuers this year to be in green formats, given the need for these companies to raise funding to finance the energy transition,” said the credit analyst.