Freddie readies EuReference reopenings

Freddie Mac is highlighting the liquidity of its outstanding euro issuance as it markets its forthcoming EuReference Note deal, the first since it announced a calendar for issuance until the end of 2002 two weeks ago.

  • 08 Jun 2001
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The deal, through bookrunners Credit Suisse First Boston, Deutsche Bank and Schroder Salomon Smith Barney, will be a reopening of outstanding issues.

Further details will be announced early Wednesday morning, London time. The deals are likely to be priced by the middle of next week.

Freddie Mac has three, five and 10 year deals outstanding in euros. The market is expecting at least two of those issues to be tapped, though as bookunners are finding interest right across the curve, all three deals could be tapped.

However, Freddie MacÕs July 2010 deal has fallen off slightly to 2bp-3bp over Euribor in anticipation of new paper, which may slightly alter the economics of issuing in that maturity.

Selling pressure may have been exacerbated by the prospect of a new September 2011 euro denominated line later this year, which will take the July 2010 off the run.

A decision will be taken overnight on Tuesday.

Bid-ask spreads in Freddie MacÕs euro paper are 0.5bp-1bp, compared to 1.5bp in Pfandbriefe.

Analysis published by Schroder Salomon Smith Barney suggests that Freddie Mac offers a higher yield for its liquidity than KfW or EIB deals, and considerably more than Pfandbrief issuers.

This discrepancy reduces the Ôbreakeven holding periodÕ for Freddie Mac and offers a considerable advantage to investors with shorter horizons. This may appeal to Pfandbrief investors who wish to manage their accounts more actively.

This will be the first EuReference Note deal since Freddie Mac published its new multicurrency calendar, which Freddie hopes will dispel lingering scepticism about the longevity of the EuReference Note programme. Bookrunners have reported a positive reaction.

Although Freddie Mac has often reasserted its commitment to the euro programme, the estimated 12bp-15bp extra cost of euro issuance has led some in the market to doubt its viability.

"If you reflect on a Freddie Mac in 10 or 15 years that is twice the size of Freddie Mac today," Jon Prince, Freddie MacÕs managing director of debt marketing told EuroWeek, "and similarly if you assume a comparable expansion on the part of Fannie Mae, you can envision the need for diversified funding bases that transcend the capacity of the US dollar, especially given the uncertainty of the US governmentÕs borrowing plans in the long run.

"Quite frankly, the EuReference Note programme is not an investment in the present: it is an investment in the future, and it is solely, and wholly, a funding based diversification venture to which we have a long term commitment as illustrated now by this integrated calendar."

Freddie Mac believes its calendar is a uniquely specific commitment to the euro market, but its euro paper continues to trade at a discount to its dollar Notes, something Prince ascribes in part to the comparative unfamiliarity of the credit.

Investors know Freddie Mac from banksÕ research and from the trade press, but only in the US is it a household name.

"We have met with a well-known investment manger today, for example, that really was only remotely acquainted with our operations," he said. "They knew that Freddie Mac was a housing dedicated enterprise. But I believe that the level of familiarity itself is a variant and that as institutions become more aware of us and of our mission and the strength of the government sponsorship, and they become more familiar with the enterprise itself, we will begin to see more demand."

Prince also hopes that as Freddie Mac continues to issue in euros, it will become a larger presence in the popular fixed income indices, which would inexorably bring investors into the credit.

The number of US investors in the euro paper is slowly increasing, which may be a sign that they are exploiting arbitrage opportunities, though arbitrage between the currencies will never reduce the spread between euro and dollar paper to much less than 3bp-4bp.

  • 08 Jun 2001

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 417,761.51 1606 9.02%
2 JPMorgan 380,362.89 1737 8.21%
3 Bank of America Merrill Lynch 364,928.71 1322 7.88%
4 Goldman Sachs 269,252.76 932 5.81%
5 Barclays 267,252.43 1082 5.77%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 HSBC 45,449.36 196 6.56%
2 BNP Paribas 38,734.80 217 5.59%
3 Deutsche Bank 37,615.10 139 5.43%
4 JPMorgan 34,724.19 118 5.01%
5 Bank of America Merrill Lynch 33,835.53 112 4.88%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 22,475.46 105 8.65%
2 Morgan Stanley 19,057.00 101 7.34%
3 Citi 17,812.08 111 6.86%
4 UBS 17,693.89 71 6.81%
5 Goldman Sachs 17,333.10 99 6.67%