Rating: provisional Baa1 (negative)
Amount: Eu300m senior unsecured bonds
Maturity: 24 June 2016
Issue/re-offer price: 99.479
Coupon: 4.5%
Spread at re-offer: 190bp over mid-swaps
Put option: at par if the Czech Republic’s ownership falls below 75%
Launched: Friday 17 June
Payment date:
Joint books: Barclays Capital, Erste Bank, Société Générale
Bookrunners’ comment:
If you look at the market backdrop, this was a terrific deal. The markets have not been in the best shape, but we roadshowed with investors last Friday and at the beginning of this week and got very good feedback on the credit.
This is a debut transaction and there is not much Czech corporate paper around. The company is 100% owned by the Czech Republic but offers a very good pick-up. There is also a good change of control covenant – a put if the republic’s ownership falls below 75%. Also, the borrower only needed Eu300m.
There are not many precise comparables, but we looked at Czech Republic CDS and sovereign bonds. On Wednesday the five year CDS were at 75bp-78bp and the 4.5% November 2014 bond at an asset swap of around 52bp-53bp.
We started the price whispers at 170bp-190bp over mid-swaps before the Greek situation worsened, and started taking indications of interest on Wednesday and Thursday. As the Greek worries got really bad we went to the wide end of guidance – we had three large orders at 190bp.
We paused on Thursday because it was so volatile that we could have put out a trade at 190bp and seen it go 15bp either way by the end of the day. We just needed to get a bit of stability so we could hit the right reoffer price.
By Thursday we had a shadow book of about Eu300m, so we decided to go ahead on Friday to avoid the weekend headline risk.
We priced at 190bp, which was about 120bp over the sovereign. The deal could probably have got done at 180bp at the beginning of the week, but it didn’t make much difference to the issuer in yield terms as the swap rate had fallen a lot in a flight to quality.
We had good support from high quality, real money accounts, with no hot money, including the big asset managers that buy investment grade corporate bonds. There was good support in Austria and the Czech Republic. There was about Eu400m of demand in the book, from 60 accounts.
It was good to get the deal out of the way before the weekend – everyone is worried that the situation in the Greek parliament could really spin out of control.
This deal doesn’t send a huge signal that the market is open again, but assuming the Greek issue does get fixed in the short term – which will probably just be for the short term – we could be back in business. There will probably be issuance next week, across credit.
