Investors pounced on what was originally a Eu150m deal and placed Eu1.7bn of orders at a yield of 5.2% for the seven year, non-call four paper.
And despite being priced inside its initial guidance of 5.375% area, the bond attracted strong demand from outside the traditional high yield investor base ? some 40% of the paper was placed with high grade buyers.
Demand was rampant, not least because Rémy Cointreau was the only fixed rate corporate bond in the euro market this week, and with just three deals firmly scheduled for the next couple of weeks, funds are desperate for product and desperate for yield.
The only other corporate bonds in the market this week were a Eu530m paid-in-kind bond for Cognis, the German chemical company, and a Eu500m subordinated deal for Casino, the French retailer, due out today (Friday).
That mix of deals suggests, too, that last year's blossoming of the high yield and cross-over markets is set to continue in 2005, with further exploration down the credit spectrum and down the capital structure.
Rémy Cointreau's lead managers, Bank of America and BNP Paribas, increased the deal to Eu200m but that did little to alleviate their allocation nightmare.
Investors, bankers and analysts expect spreads to contract even further in the next quarter, and issuers are keen to profit from such a borrower friendly market.
?Rémy Cointreau regularly taps the capital markets,? said Françoise Cambilargiu, group treasurer of Rémy Cointreau. ?On this occasion we decided to raise funds to take advantage of the booming and bullish market conditions.?
The 5.2% coupon and yield on the seven non-call four year bond smashed the previous record set by German engineering company Peri, when it launched a Eu250m bond in December at a yield of 5.625%.
But the popularity of the deal was not just based on market technical factors. Rémy Cointreau is a regular visitor to the high yield market, having issued bonds in 1998 and 2003, and is a much-followed credit, due to its high profile brands, which include Rémy Martin cognac, Cointreau liqueur and Piper-Heidsieck champagne.
The power of names
?Rémy Cointreau is a magic name and we have achieved magic numbers for them,? said Stephane Tremelot on the high yield syndicate desk at BNP Paribas in London. ?We have achieved the lowest ever coupon in the European high yield market and the spread of 186bp over Bunds was also the lowest ever in this sector.?
Rémy Cointreau is rated Ba2 by Moody's and BB- by Standard & Poor's, though both scores are on negative outlook.
?The fact that Rémy is rated double-B is an attractive feature,? said Tremelot. ?Only 10% of last year's issues were rated double-B and when an issuer of this category appears in the market, there is always good demand for it.?
The deal was turned round quickly for a high yield bond, being launched and priced within 48 hours.
Rob Gardiner, syndicate official at Bank of America in London, said this was possible due to Rémy Cointreau's excellent name recognition globally, together with a one day roadshow the company undertook in London and an investor conference call.
?In addition, this was the first corporate deal of 2005 and as a result we had the full focus of the market,? he said. ?There was a mixture of high grade and high yield investors in the book, with both institutional and high net worth individuals. Most of the distribution was in the UK, France and Germany, but we also had buyers from Asia, Benelux, Scandinavia and the US.?
Cambilargiu says investors like the Rémy credit as it has consistently delivered what it said it would deliver over the past five or six years. ?We met some outstanding funds and those that subscribed have done so because they like our consistent credit story and our premium brands,? she said.
Investors found the pricing tight but some felt that such a high profile name and the lack of supply justified the meagre return.
?We do like the business,? said a fund manager at one of the French insurers. ?The cognac side of things is doing reasonably well and the champagne side excellently. The company is well managed and we like the credit. Its cashflow generation is more than decent and on this basis we participated in the deal.?
However, one of the German fund managers declined to get involved. ?It was a little too expensive,? he said. ?The company was downgraded by Standard & Poor's in December but that was not the major reason for our lack of interest ? it was just the pricing. The yield was well below 6% and there are a lot of bonds in the high yield universe offering better value.?
The deal performed well in the aftermarket, trading as tight as 100.50 before settling at 100.00/100.375.
Publicis set to pay back CB
Investors looking for corporate bonds will be restricted in the next couple of weeks to issues from the unrated French advertising group Publicis, a Eu1bn five year bond from Telekom Austria and a Eu120m high yield bond from Greek yoghurt producer Fage Dairy.
However, investors are hoping to hear of more issuance and a possible sell-off, triggered by rising rates.
?With such cheap money being offered to issuers, I expect a couple of deals in the next couple of weeks to refinance LBOs and the like,? said one investor. ?We are at very tight levels and that is set to continue. It is the first time in about seven years that high yield bonds are interest rate duration exposure and many names are priced on a CDS basis.
?But if the global economy falters and interest rates rise, this will have a clear impact on the high yield universe.?
Publicis, the world's fourth largest media company, awarded a mandate this week to Barclays Capital, BNP Paribas, Citigroup and SG to launch its first euro bond after roadshows next week and the week after.
The proceeds will be used to fund a buy-back of Eu690m of convertible bonds it issued two years ago that are now expensive.
The company announced that the transaction was a further step in the balance sheet simplification process it initiated last year. ?Publicis has three major objectives,? it said: ?retire complex securities, progressively reduce potential dilution associated with equity-linked instruments and reduce both debt and interest charges, in particular in the context of IFRS accounting standards.?
Publicis trades at Libor plus 74bp mid in the credit default swap market and its closest comparable, UK advertising agency WPP, which is rated triple-B, trades at 40bp mid, highlighting the value of a rating. Bankers say Publicis is committed to obtaining ratings by the end of this year.
Telekom Austria, rated Baa2/BBB on a positive outlook by both Moody's and Standard & Poor's, announced that it would raise up to Eu1bn next week to finance its acquisition of Bulgaria's Mobitel.
The transaction, the Austrian telco's second visit to the bond market, will be lead managed by ABN Amro, Citigroup and Lehman Brothers.
And back on the high yield front, BB- rated Greek yoghurt maker Fage Dairy Industry will issue Eu120m of 10 year non-call five senior notes next week, with Citigroup as lead manager. The proceeds are to refinance existing debt and fund the company's further development of its business in the US.
A roadshow starts next Monday and the deal will be priced on Friday, January 14.