Rating: Aa3/A+/AA-
Amount: $500m
Maturity: October 4, 2005
Issue/fixed re-offer price: 99.95
Coupon: 7.125%
Spread at re-offer: 108bp over the 6.75% May 2005 UST
Launched: Wednesday September 20
Joint leads: Nomura (books), HypoVereinsbank
Bookrunner's comment:
This five year Eurodollar benchmark for HypoVereinsbank follows a successful Asian roadshow conducted with by us earlier this year, and last week's news that the Austrian takeover commission had approved HypoVereinsbank's Eu7.8bn share swap bid for BankAustria.
Following the merger of Bayerische Vereinsbank and Bayerische Hypotheken- und Wechsel-Bank, HypoVereinsbank is one of Germany's only two remaining 'mixed' mortgage banks, carrying out both mortgage and public sector lending, and commercial banking.
The credit story behind the takeover bodes well for the issue, as the recovery of HypoVereinsbank's underlying profitability, coupled with the acquisition of BankAustria, has already resulted in Moody's and Fitch confirming their ratings for the bank at Aa3/AA-.
The issue was launched on Wednesday at 1300 hours, but had already been extensively premarketed in Asia and Japan overnight, allowing us to build up a strong potential order book prior to launch. This issue is one of the few fixed rate Eurodollar bonds from a European bank to come at this maturity this year and it therefore filled a gap in many investors' portfolios.
Pricing for the issue was seen as attractive by accounts, at Treasuries plus 108bp, compared to similar credits in the sector, and the spread pick-up resulting from HypoVereinsbank's split Aa3/A+ rating has been warmly welcomed by the market.
Early sales have proceeded smoothly, and we have been seeing good demand soon after launch, with further strong placement expected overnight in Asia and Japan. This issue highlights the recent willingness of Asian investors to venture down the credit curve in search of yield.
Our preliminary distribution is Japan and Asia 53%, the UK 27% and Europe 20%, with bank portfolios taking 30%, governmental agencies 27%, IMGs 28% and insurance companies 15%. The issue is now (Thursday afternoon) trading at 108bp, having broken syndicate at its re-offer spread.
Market appraisal:
"...there is strong demand for Eurodollar product at the moment, based on the weak euro and the attractive coupons available in the dollar sector. This issue is ideally suited for investors' requirements - HypoVereinsbank is a very good name, the deal is fairly priced, and it has an attractive 7.125% coupon. It should retail out successfully over time."
"...an interesting and reasonably rare name coming at a decent spread will appeal to the currently strong appetite for Eurodollar product.
The five year maturity is very much in demand from both retail and institutional accounts. The $500m size coupled with the 108bp spread will satisfy institutions and the name and the 7.125% coupon will draw in retail."
* Landesbank Baden-Württemberg
Rating: Aaa/AAA/AAA
Amount: $500m
Maturity: October 5, 2005
Issue price: 101.489
Fixed re-offer price: 99.864
Coupon: 7%
Spread at re-offer: 95bp over the 6.75% May 2005 UST
Launched: Thursday September 21
Joint books: Dresdner Kleinwort Benson, Merrill Lynch
Bookrunners' comments:
Dresdner KB - Our Dresdner four year transaction launched a couple of weeks ago went very well. We passed it secondary at the beginning of the week and were looking for something to replace it to satisfy consistent demand from Swiss, UK and German funds for decent quality credits carrying reasonable spreads.
This issue is priced at Libor flat at the re-offer and was judged good value at the Treasury equivalent of plus 95bp.
We had a couple of large orders to get the deal going and anticipate good retail demand to follow. LBW did a three year transaction earlier in the year that sold well to retail. This transaction, with its 7% coupon, should also appeal to the retail networks. For institutions, they have a reasonably liquid deal of $500m carrying a decent spread of 95bp over for a very strong Aaa/AAA credit.
Spreads are on a tightening trend and we expect this bond to perform over the next couple of weeks.
Merrill Lynch - We have seen surprisingly strong participation from institutional accounts in our recent short end deals, and the general feedback over the last few days, especially from Asia, has been that accounts are looking for longer maturities than most of the recent high quality issuance, which has been in the two to three year area.
LBW, which is Germany's third largest Landesbank and benefits from having the state guarantee of Germany's wealthiest state, Baden-Württemberg, was a perfect candidate to tap into this demand.
The $500m size is large enough to attract institutions and the 7% coupon is attractive to retail. So this deal can be expected to benefit from a crossover of institutional and retail buying. At 95bp over Treasuries, the deal is priced 20bp back from agencies and 7bp back from KfW. This was seen by clients as fair for such a top notch credit. From the presoundings we have made, we anticipate good sales into Asia overnight to supplement the demand we have already seen from across Europe, as the continued strength of the dollar and oil price keeps money flowing into the dollar sector.
* Total Fina Elf SA
Rating: Aa2/AA
Amount: $500m
Maturity: October 5, 2005
Issue price: 101.598
Fixed re-offer price: 99.998
Coupon: 7%
Spread at re-offer: 96bp over the 6.75% May 2005 UST
Launched: Wednesday September 20
Lead mgr: BNP Paribas
Bookrunner's comment:
We had been seeing a lot of institutional demand for oil sector bonds. There had been good buying of secondary issues in the sector and supply had pretty much dried up.
We had been working on this transaction for two or three days before launch, marketing the deal to the institutional demand we had been seeing and to the traditional retail customers of the Total Fina name. The feedback was positive.
Dollar demand had picked up significantly after the initial lull caused by the weak euro and customers were looking specifically for paper with the right coupon and that offered a bit of diversification away from the more frequent Eurobond names.
A lot of our Swiss clients had requested something different for their buy lists. They also wanted a bigger size than the average purely retail targeted deals, which typically do not stay on the lists for long enough because of a lack of liquidity. They wanted something that would stay for at least two to three months.
With the outstanding Total Fina 2004 issue trading at 90bp over, and the five year Mobil trading some 10bp tighter than that, we felt that 96bp was spot on for this trade. There are very few comparables, in fact, since Eurodollar issuance has been so light this year.
As for placement, first day sales were very pleasing, with a good cross section of demand. Swiss and UK funds were the biggest buyers, but we also had participation from the couple of European central banks that can take corporates, plus French, Italian and Middle Eastern funds. Most of the first day demand was for cash.
We have also had good demand on day two, but mainly on a switch basis out of other oil issues such as Mobil, the outstanding Total Fina, other expensive retail deals, and one or two out of sovereigns and supranationals. The cash buying we did see today came mostly from Asian accounts.
The deal is now on all the relevant Swiss and Benelux buy lists, which is pleasing, and we are already starting to see retail demand coming through.
We are not sold out, but have more than 50% of the bonds placed and are very comfortable with that. We have more orders circled and we are confident that the issue will continue to feed out through the retail networks.
Market appraisal:
"...Total Fina's recent five year euro issue sold well despite aggressive pricing. This bond is also aggressively priced, but there are investors who want exposure to the oil industry and that is difficult to find in the high quality dollar market. Therefore, despite the tight pricing, we believe the transaction will work.
We sold out bonds quite easily to Swiss accounts."
"...priced at 96bp over and freed to trade at 97bp, which is probably where the leads own the deal. Why bother to syndicate an issue if you intend to let the price fade so quickly?
Actually, this is a good time to launch an oil deal. There is tremendous demand for the industry given what is happening to the oil price.
And Total Fina is a very good credit, as we saw with its euro denominated bond. Unfortunately, though, this has not been handled too well and a lot of bonds have traded down into the broker market."
"...aggressively priced. Total Fina is certainly a popular name with retail investors, at whom this deal is targeted, but Libor plus 7bp is quite tight for a Aa2/AA borrower. But there has not been much supply in the retail dollar sector, so appetite should be fairly keen. The predominantly Swiss and Benelux syndicate indicates the lead manager's expectation of strong sales.
But Total Fina has been active in dollars, euros and Swiss francs recently and oversupply may become a problem. The size of this offering, too, is ambitious at a time when the currency is expensive, but retail investors will probably be satisfied by the 7% coupon."
"...we participated in the borrower's euro denominated transaction and were keen to take a position on the dollar offering. Total Fina is a prestigious name that, until recently, was a rare visitor to the markets. It remains well known among Benelux investors and demand should be strong."
