Rating: Aaa/AAA/AAA
Amount: Sfr200m
Maturity: November 19, 2004
Issue price: 102.05
Coupon: 3.25%
Launched: Wednesday October 8
Lead mgr: Credit Suisse First Boston
Bookrunner's comment:
This started very well and the feedback from the syndicate at first was quite positive. Quite a few banks wanted more bonds.
Obviously the deal then suffered when circumstances beyond anyone's control arose. However, we can live with that. We had preplaced some of the issue and overall we have placed a fair amount. We launched the deal at Libor minus 22bp/23bp and it is now at less 24bp/25bp.
Given the circumstances we had very little flowback, so people are clearly positive about the outlook or have sold their bonds. We think that the market has overreacted to the Bundesbank rate hike.
L-Bank is a very good name. It is not just a Landesbank, but the state development agency of Baden Württemberg. People who think that it is just another Landesbank are mistaken.
Market appraisal:
"...an unfortunate trade. This was another deal where the pricing and maturity were fair, but it was done on the assumption that a positive market undertone in the morning would continue into the afternoon.
It is a pity for the issuer as it is rare in the market and has never quite managed to launch a blow out in the Swiss market since it changed its name. You can't blame that on the lead or the issuer, but it leaves a bad taste in the mouth and it won't make future issuance for L-Bank any easier."
"...this came at a reasonable level, but it was difficult because of Greenspan's comments. The seven year maturity is reasonably OK, after the five and then six year sectors. CSFB did the IADB seven year deal so they were probably familiar with where there would be demand for this.
Had it not been for Greenspan, then this could have succeeded, even if the IADB is not completely sold out. Unfortunately it rather died off. Had it had a day or two of a reasonably friendly market then it would have pulled through."
"...this came at a level decisively cheaper than L-Bank has previously issued so it attracted some attention when it came out. However, that did not result in a great deal of buying. Then two hours later the market turned, so sales were minimal."
* Toyota Motor Credit Corp
Rating: Aaa/AAA
Amount: Sfr1bn
Maturity: November 12, 2002
Issue price: 102.40
Fixed re-offer price: 100.65
Coupon: 3%
Spread at re-offer: 15bp through the Libor swap curve
Launched: Tuesday October 7
Lead mgr: SBC Warburg Dillon Read
Bookrunner's comment:
We worked on this deal for about six months and we are proud the hard work has paid off. Some other banks showed Toyota an issue, but none of the others were for more than Sfr500m. We watched the market closely and waited for the right time to do this Sfr1bn deal -- the largest for a corporate borrower in the Swiss market.
If you look at the Euromarkets, the major currencies are pretty dead. You can't do a deal of this size in any other market at the moment and it is unlikely they could have reached this funding level.
Toyota were very keen with this deal to prove that they can diversify out of the Euromarkets and that ability has been demonstrated. The last time they came to the Swiss franc market was about a year ago and they wanted to return.
For us, it was difficult to find the right time to launch such a deal using the fixed re-offer system and there was always going to be a certain amount of risk in doing this transaction.
We decided to make use of a re-offer price as people have complained for some time that they are quoted a price by one bank soon after launch, only for another bank to quote them a different price 10 minutes later.
The use of the system should attract more institutional investors and allow people time to do their jobs more professionally, in the same way that it did when it was introduced into the Euromarkets.
This kind of transaction can be the future in the Swiss market. If you look forward to 1999 and the introduction of the single currency, there are going to be big changes. The Swiss franc could be a big player, rather than the niche market it has been up to now.
The whole investment community needs to adapt to the changes that are and will happen and get more professional. From recent discussions in Switzerland, we understand that this is already beginning to happen.
In general people stuck to the fixed re-offer price very well. Only a very limited amount was sold below that level. And although there have been big movements in the markets today (Thursday), we have maintained a spread and it has come in from the re-offer of 15bp through Libor to bid minus 16bp, offer minus 18bp.
We felt that the use of the praecipuum was justified, as although we are moving nearer to the Euromarkets, we are still different. The make up of the syndicate was different to what it would be for a similar dollar deal and the group was also larger. We took on the majority of the risk in launching the deal -- only syndicating Sfr285m -- and if others launched a similar deal then we would be happy for it to be done in the same way.
Sales have been going very well and retail haven't even started buying. Most of the deal was sold into Switzerland, but 10% of tickets so far have gone to non residents. Domestic institutions -- insurance companies, pension funds and mutual funds -- have been the main buyers. Because of the size of the deal we did some premarketing, but we didn't write a single ticket before launch.
Market appraisal:
"...the introduction of the fixed re-offer price here worked as the price was fair and the lead manager didn't syndicate a lot of the transaction. There was no undercutting and the system worked well.
Most of the group were sold out on day one and the price has come in a little. It suffered a little after the rise in swap rates that followed the drop in US Treasuries, but it is still trading above the re-offer. The Swiss market in general is not down as much as the size of the US fall suggests it should be.
Over the past two weeks volumes have been low by historical standards and it was good to see this deal. However, it has not in itself provided a boost to the market and things are pretty much the same as before.
The deal clearly needs time to clear as although buying was strong it was not overwhelming. The underlying market sentiment is still slightly bearish and there is a risk for those who are still holding big tickets of this transaction.
The maturity was a good idea as it covers most accounts and there are some people who can't go out beyond five years."
"...the issuer normally has targets of around Libor minus 20bp, so its decision to have a target of Libor minus 15bp for this was clearly influenced by the need to get away such a large amount of paper. The generousness of the borrower to both the lead manager and to investors has paid off.
TMCC is one of the best names around: it is triple-A rated, well known and is a corporate. It has not issued as frequently as other top credits such as GECC and the German Landesbanks, so people have room for it in their portfolios and it has a good reputation.
The pricing of Libor minus 15bp is fair both for TMCC and also for the current market level. Other triple-A names were trading more expensively because of the rally in the first half of the week. The maturity is fine as bond funds and retail investors will buy it.
The deal has gone well, especially given the weak tone of the market, but it has not been a blow out. However, the lead manager should be congratulated for getting the deal away so well.
There was a competitive bidding of sorts for the deal: some people were aware that TMCC was looking at a big Swiss franc deal and SBC clearly gave them the best offer.
The fixed re-offer price has been touted around for some time as a better way of doing big deals. The idea worked here as the pricing was fair and it didn't make any sense to sell it outside the re-offer. This deal could set a precedent, with deals above Sfr500m being launched in this way."
"...a good deal that was correctly priced. Everybody was happy with the paper they got and the price they got it at.
However, there were a few problems with the deal.
One was that it was unfortunate that nobody knew that the lead manager had been premarketing the deal the day before launch.
But the main thing was the size of the deal: it was twice as big as it should have been. As the quotas were quite reasonable, that will be a problem for the lead, and not the group, but it will not help the performance in the secondary market. There will not be any tightening because as soon as the price comes in a little, more supply will come in to the market.
Nobody will know exactly how this would have gone had Greenspan not upset the markets, but the lead manager will have problems getting the deal away.
The market has not got the same capacity to absorb such a credit as this as it has for some other benchmark names. Other will generate a bid from outside Switzerland, from central banks and the like, but corporate names will only really be bought by retail clients. They can absorb a certain amount, but not Sfr1bn as they need to diversify their portfolios. Italy could count on a foreign bid, but TMCC can't.
The timing was good as the market was quite stable and nobody could have foreseen the problems Greenspan would cause. The maturity is one that corporates do well in and there has been no five year issuance for some time.
The use of a fixed re-offer price similar to that of the Euromarkets was a joke for several reasons.
Firstly, a lot of paper was sold outside of the re-offer price. Secondly, the lead took a praecipuum. And thirdly, nobody has agreed on the idea beforehand so there was no incentive for people to go along with it.
To introduce the system in Switzerland you need to get all the lead managers to agree that it is in their interest. There are not a large number of banks that lead issues in Switzerland and the banks that only participate in syndicates are happy with the current system.
There was a deal for the World Bank some time ago that had a fixed re-offer price and that didn't work very well. This probably doesn't mark a new way of doing deals in Switzerland."
"...to launch a Sfr1bn deal on Tuesday was probably a bit ambitious, but the deal is a very positive development for the market. For a couple of weeks market sentiment has not been great and there have not been many retail buyers around. However, the market was quite stable before launch and as the pricing was fair it worked.
This is a really good deal for Toyota, as they could not have achieved these levels in either the dollar or Deutschmark markets at the moment. It is also very reasonably priced for such a quality credit.
The use of the fixed re-offer price is not something new for international banks, but SBC was quite cheeky in the way that it used it here. As well as having a re-offer price, it kept a praecipuum, but got away with it. As for political reasons, it knew that all the big players would have to be in a TMCC deal.
Nevertheless, they have maintained the spread despite the volatility on Wednesday afternoon and Thursday and it is trading at Libor less 17bp."
"...at the beginning this went really well. The lead obviously kept a large chunk and they must be hedging it as otherwise they are taking a really big risk with this. We took down quite a lot and sold most of it at the beginning, writing some big tickets. We're glad that we got most of it away as the market has suffered from the Bundesbank rate hike.
All in all this is a really nice deal, positive for our market. There are some investors who are attracted by the size and who wouldn't even participate in a similar deal for Sfr700m. The fixed re-offer price seems to have worked quite well, although there were some offers at the brokers 10bp to 15bp below the re-offer level. The retention of the praecipuum was not very nice."
Domestic issuance:
* Kanton Solothurn
Amount: Sfr50m
Maturity: October 30, 2007
Issue price: 99.25
Coupon: 3.75%
Launched: Friday October 3
Lead mgr: Rüd Blass
* Pfandbriefzentrale der Schweizerischen Kantonalbanken Series 311
Amount: Sfr260m
Maturity: October 31, 2005
Issue price: 100.50
Coupon: 3.5%
Launched: Wednesday October 8
Lead mgr: Zürcher Kantonalbank
Market round-up
Swiss bond prices were hit this week following Federal Reserve chairman Alan Greenspan's comments on Wednesday and the monetary tightening across Europe that followed the Bundesbank's decision to raise its repo rate on Thursday.
However, the Swiss market fell by less than bankers expected after the US Treasury fall and comments from Swiss National Bank chairman Hans Meyer, reported on Thursday, indicated that Swiss rates were unlikely to change in the near future.
In the newspaper report, Meyer was quoted as saying that "there is absolutely no question of a brutal change" in monetary policy.
The December Confederation futures contract fell by 18bp on Wednesday and 54bp on Thursday to close at 118.70. The yield on the 4.5% June 2007 government bond rose from 3.44% on Tuesday evening to 3.522% on Thursday.
The market had been quite stable in the first half of the week and SBC Warburg Dillon Read successfully launched the largest corporate bond issue in the Swiss market for TMCC. The Sfr1bn November 2002 deal came out on Tuesday with a yield of 3%.
SBC chose to launch the deal with a fixed re-offer price, a practise common in the Euromarkets, but rare in the Swiss foreign market. An official at the lead manager said that the use of the system should attract more interest from institutional investors.
The deal, coming at 15bp through Libor, was welcomed by syndicate officials, both for its fair pricing and its impact on the market.
An official at SBC suggested the deal might signal the future direction of the Swiss franc market. "If you look forward to 1999 and the introduction of the single currency, there are going to be big changes," he said. "The Swiss franc could be a big player, rather than the niche market it has been up to now."
In the domestic market, Zürcher Kantonalbank launched a Sfr260m deal for Pfandbriefzentrale der Schweizerischen Kantonalbanken. The 3.5% October 2005 deal was launched at 25bp over governments and quickly tightened to around 20bp over.
