“It’s a bit like when your kids are upstairs playing and it all goes quiet,” said a credit fund manager at a UK asset manager. “It’s probably nothing, but you need to check, just to make sure. The longer the lack of volatility goes on, the more paranoid we get that we’re going to miss something huge that is going to hit the market.”
But, try as they might, investors cannot find anything to alarm them. “We’ve discussed just about every scenario for tapering and rate rises and we keep coming back to the position that we see little changing that isn’t already factored in,” the fund manager said.
GlobalCapital is tempted to say: “Hello! Catalonia!”
However, the current pace of supply suggests issuers are on the same page as investors: steady as she goes. Volkswagen’s €2.25bn dual tranche offering on Monday was the only deal in the market that day. Three benchmark deals were priced on Tuesday, but they only totalled €1.75bn, and Wednesday’s mandates suggest a similar day.
“I’m slightly surprised we haven’t seen a few more deals in euros in September,” said a portfolio manager at a bank in London. “But supply has been steady, and there has been a bit of backing up of spreads in the last week or so — related to North Korea and Germany.”
This steady approach has allowed corporate bond new issue premiums to remain in single digits, despite the slight softening in the secondary market.
Levfin investors take stock before jumbo deals restart
Leveraged finance investors have welcomed the calmer primary market this week after a busy September, though they warn that more jumbo deals are just round the corner.
Big deals last week experienced pushback from investors over terms, leaving buyers glad of the chance to catch their breath.
“It’s a relatively quiet week,” said one investor. “This is good, as last week was so credit-intensive, and this allows the market to reflect on the sorts of terms that deals were trying to push through.”
The main gripe investors had about some of last week’s bond and loan deals was what they saw as the erosion of the definition of Ebitda. Two investors said that by including unrealised projected synergies in an Ebitda figure — which promoters of one deal attempted last week before abandoning the attempt when investors objected — it made the concept of Ebitda pointless.
“Once we concede this,” said one investor, “it will be a complete shift in how the high yield bond market uses many of its key metrics to judge an issuer.”
Ebitda is used in many of the ratios investors use to work out the health of a company, such as seeing how much more debt a company can take on and remain robust by looking at the debt to Ebitda ratio.
Investors are not expecting the serenity in the primary market. A jumbo refinancing of up to €10bn is in the pipeline for next week or the week after.
Investors are trying to work out whether the potential issuer — a telecoms company — will lean more on the bond or loan market.
“The existing debt capital structure is €10bn,” said a second investor. “One can expect a similar amount of refinancing. The capital structure is very bond-heavy, so they may want more loan debt, which will be cheaper for them to pay down with free cash flow.”
Bianca Boorer, emerging market loans +44 207 779 8423
Silas Brown, niche currency bonds, private placements and investment grade loans +44 207 779 8689
Jon Hay, corporate finance editor +44 207 779 7321
Victor Jimenez, high yield +44 207 779 7379
Nigel Owen, corporate bonds +44 207 779 7370
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