Guarantor: RWE AG
Maturity: July 23, 2018
Issue/re-offer price: 99.717
Spread at re-offer: 72bp over mid-swaps; 122.4bp over the 3.75% July 2013 Bund
Launched: Friday July 11
Joint books: Citigroup, Credit Suisse First Boston, Deutsche Bank
BASL, Commerzbank, DrKW, SG
Joint bookrunners' comment:
This is the largest 15 year euro corporate issue ever launched and the last public transaction from RWE of 2003.
The transaction came together quickly. We were awarded the mandated late on Wednesday and put the deal in the market early on Thursday. We held an investor call before lunch, which was well attended and during which the management of RWE confirmed this transaction would be their last public benchmark issue of the year. The 15 year sector has been strongly supported by the investor base this year so the timing for this new issue was attractive.
We were keen to get the deal away before the French public holiday on Monday. The deal came together rapidly and we were able to print the deal on Friday.
We closed the books at 5pm on Thursday. We had announced a transaction of Eu750m plus. The borrower had been looking to raise around Eu1bn, with a maximum of Eu1.2bn. With a Eu1.7bn book, we revised price guidance on Friday with the borrower's permission down to 72bp-74bp over mid-swaps and went out to accounts to see if a Eu1.2bn deal was possible.
The book was high quality and geographically diverse. The average allocation was Eu9m and the biggest order Eu120m.
The book totalled Eu1.7bn with 140 accounts involved. Germany and Austria accounted for 29%, France 20%, UK 14%, Benelux 12%, Italy 10%, Scandinavia 6%, Spain 4%, Switzerland 2%, Portugal 1%, US 1%, and non-Japan Asia 1%.
Fund managers were 51%, insurance companies 14%, hedge funds 4%, pensions 6%, banks and retail 22%, central banks 1%, and corporates 1%.
RWE is a very well known borrower in the capital markets and has a well established curve in euros. The outstanding 2033s were trading at 93bp over mid-swaps at the time. The 2016s were at swaps plus 66bp, the 2012s at 64bp and the 2008s at 43bp.
Since launch the new 15 year bonds have traded tighter to 119bp/117bp over 10 year Bunds, having been launched at 122.4bp.
"...although this deal was priced in line with market expectations, I found the spread slightly too tight. It marketed at 75bp over mid-swaps, but following the deal's increase to Eu1.2bn, pricing was tightened to 72bp.
The tighter pricing left no room for upside in secondary performance. We saw evidence of this just after it freed to trade - it was wider by about 2bp.
However, this issue benefits from the borrower's well known name, and the cash generative sector, which is popular with retail investors, so overall it was a well received deal with an order book of nearly Eu2bn."
"...at Eu1.2bn they upsized the deal a little too much considering books reached Eu1.7bn.
People were expecting the transaction to price around 74bp-75bp over mid-swaps but the bonds priced slightly tighter at 72bp. If they had priced a Eu750m deal at 72bp or the bigger deal at 74bp- 75bp, it would have been better.
They went for the bigger deal and the tighter spread so the bonds suffered in the secondary market, initially trading 2bp wider on the break.
However, they are now are trading at 123.18bp over the Bund on Thursday so they have tightened in again towards the 122.4bp level they were priced at.
A good comparable is the Enel 2018, which trades 20bp tighter because it is viewed as a better credit while outstanding RWE 2012s trade at around 51bp over mid-swaps.
There is overwhelming retail demand for RWE from Germany allowing the issuer to bring this large and aggressively priced 15 year deal."
"...this was a good deal. There were some concerns however about printing Eu1.2bn which is a bit unusual against a book of Eu1.6bn. Investors felt they pushed the deal a bit too far.
The price guidance of 75bp was fair, with a 10bp curve from 10 to15 years. The transaction was helped by the back up in rates. This is a very well appreciated name at the long end - they did a successful 30 year earlier this year. The fact that they aren't doing anything else this year also boosted the trade."