Guarantor: Deutsche Bahn AG
Maturity: June 16, 2011
Issue price: 99.763
Spread at launch:
Launched: Monday May 24
Lead mgr: Morgan Stanley
Morgan Stanley ? The demand for the bonds was driven out of a combination of the higher interest rate environment and the lack of available Eurodollar paper, particularly amongst Swiss retail investors.
The name Deutsche Bahn is not only a rare name but is cherished by Swiss accounts and has a solid rating, operating in an industry close to the heart of Swiss retail investors.
The name commands strong interest from retail accounts and the rise in interest rates recently enabled us to achieve an eye catching 5% coupon on a seven year transaction.
The seven year maturity doesn?t always command the depth of retail demand but the lack of paper in both euros and dollars means that investors are driving further up the curve for enhanced yield.
The borrower has no significant funding needs this year, hence the reason for a modest $250m transaction.
Deutsche Bahn has a 10 year euro in high teens over swaps ? this transaction was priced in the low teens over dollar Libor.
?...we were surprised to see a Eurodollar trade longer than five years and of such small size. Institutions won?t buy $250m deals and retail won?t buy longer than five years so the target audience for this bond is small indeed. Also the level was punchy, providing Deutsche Bahn with excellent funding of Libor plus 15bp/16bp all-in.
Having said all that, we sold our $5m retention into Asia and sourced another $20m of bonds to fill orders that we had so we enjoyed a very positive experience with this issue.?
?...seven years is not a favoured maturity for retail but it hit the right note being a small, easy to control deal and a fantastic name. But the selling point is the 5% coupon. That is going to appeal strongly to retail accounts for such a well liked name.
We made the pricing around swaps plus 13bp, which is aggressive for this borrower.?