Along with weak structural features that limit downside protection, increasing the claw-back on a deal means that the upside features are being compromised, said Andre Mazzella, portfolio manager at Morley Fund Management in London.
But investors are not swallowing the increase. After a roughly six-week period during which claw-backs had climbed to 40%, weaker credit markets helped investors buck the trend and force issuers back to 35%. Filtration products manufacturer Polypores $400 million equivalent offering (via J.P. Morgan Securities) and Spanish unlisted cable company ONOs E350 million offering (by BNP Paribas and Morgan Stanley) were both altered to a 35% claw-back. German chemicals company Cognis E745 million offering, led by J.P. Morgan and Goldman Sachs, was also changed late in the marketing period.
Investors viewed the 40% claw-back as too aggressive, so it was changed to achieve better pricing, said a syndicate official at J.P. Morgan, referring to the Polypore sale.
The claw-back climb began in late March with a 40% level on a E275 million offering of 8 1/4% notes of 14 by airplane engine repair and overhaul provider MTU, managed by Credit Suisse First Boston and J.P. Morgan.