Maturity: December 30, 2005
Issue/re-offer price: 99.754
Spread at re-offer: 107bp over the 2.875% June 2004 UST
Launched: Thursday July 11
Joint books: Dresdner Kleinwort Wasserstein, UBS Warburg
We decided on the deal yesterday and did it today. Although over the last few weeks a number of banks had been talking about this opportunity, we were not in a hurry, but if we had not done the deal now we felt we would have had to wait until September.
Placement was divided between retail, institutional accounts and a lot of central banks.
The deal had one component that we consider very important in an opportunistic deal - aggressive funding. It was in the double digits through Euribor.
It was not a benchmark deal, but similar to other deals we have seen recently, what with the broken maturity, having two leads and no syndicate, only $500m and with a retail component as well as an institutional component. We are very pleased with the deal.
We now have about $2.5bn left to fund this year, and over the next few months we will still be doing private placements at aggressive levels. After the summer we will be looking to do a benchmark transaction. Hopefully the market will be somewhat quieter by then. We do not know what currency we will issue in yet. The dollar offers better opportunities at the moment because of the demand levels and better arbitrage, but the euro is our home currency.
DrKW - We have been working on the issue with ICO for some time and were mandated late on Wednesday afternoon. We went out to our European sales force, received a positive response from them and were able to secure some good orders.
We then showed the deal to Asia and, with the Dow falling some 280-odd points on Wednesday and the Treasury market rallying by 8bp-10bp, there was some concern about the success of the issue. This proved unfounded, however, as we saw very good interest out of Asia.
We continued to market the issue in Europe this morning (Thursday) and had more strong demand from top flight accounts such as European central banks and Scandinavian funds. There has also been good participation from Swiss retail.
ICO is a perfect credit to bring to the market in the current environment. With the turmoil in the equity markets and worries about corporate credits generally, a quasi-sovereign issuer is very well received. People are simply looking for safe haven securities in which to invest their cash.
We were almost 85% done at the time of pricing and we expect to be sold out by the end of the week, if not by the end of the day (Thursday). The issue came at a 107bp over the two year Treasury, which compares favourably with recent December 2005 bonds for BNG at 107bp/105bp, LBank at 108bp/106bp and Sweden at 89bp/87bp.
UBSW - The steepness of the US Treasury curve continues to provide excellent arbitrage opportunities in the front end of the market. The recent December 2005 transactions have met with an enthusiastic response from both institutions and retail where a high headline spread is provided over the two year Treasury.
The volatility of the equity markets continues to drive a number of investors into the front end of the Treasury market - a classic flight to quality scenario - therefore any sovereign or government guaranteed product is met with open arms by retail and institutional investors.
Although the size of the ICO transaction did not meet the parameters of a number of the larger investors, we were still pleased with the Asian and European demand that we saw for the transaction in its primary phase.
We are currently (Thursday afternoon) just over 75% sold, which is very pleasing as we would have expected to sell less given the market conditions we found ourselves with this morning.
The strong sell-off in the Dow Jones pushed the two year Treasury yield through 2.6% and made some investors reluctant to lock in yields at such a low level. Another factor that may have caused some concern was the sub-4% coupon, but in fact retail is picking up the bond relatively quickly.
Comparisons for ICO would be the Sweden 4.375% of December 2005 trading at Treasuries plus 89bp/88bp, the LBank 4.75% December 2005 at 108bp/106bp and BNG 4.375% December 2005 at 107bp/105bp.
On a Libor basis at around mid-swaps minus 8bp-9bp, ICO's pricing is very much consistent with its only other two outstanding dollar bonds, the 4.625% November 2006s trading at dollar Libor minus 7bp and the 6% of May 2008 trading at around dollar Libor minus 10bp.
"...ICO is so slow. If only they had done this a couple of weeks ago when it was first mooted it would have been a better deal. Still, it is a good name and achieved a good spread - 10bp through for a December 2005 deal is a good result. The market feels good, with investors looking for safe haven names."