Sterling

  • 18 Sep 1997
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* General Electric Capital Corp

Rating: Aaa/AAA

Amount: £100m

Maturity: September 26, 2002

Issue price: 101.015

Fixed re-offer price: 99.39

Coupon: 7%

Spread at re-offer: 15bp over the 7% 2002 Gilt

Launched: Monday September 15

Joint books: Nikko, UBS

Bookrunners' comments:

Nikko -- Sterling retail deals have been fairly rare recently as the pound has fallen back against currencies such as the Deutschmark.

There is a feeling, however, that the current levels of sterling are much more sustainable and European retail is comfortable buying sterling at these levels.

We have seen a pick-up in sterling flows over the last two weeks. GE is a top corporate name and ideal for the market. Its last sterling transaction, a 7%, due 2002, was one of the few in the sector to tighten.

We were pleased after the event to have chosen a 7% coupon with a discount. Such was the rally in the market that the bonds quickly traded up to par. If we had given the deal a 7-1/8% coupon, then the bonds would have gone above par. We had excellent sales on day one -- better than expected -- although we did have to buy a few bonds back on days two and three as the market was so strong. Despite the rally, the spread is firm at 15bp/14bp over.

UBS -- We wanted to offer a sterling deal to retail in the 2002 maturity, different to the usual diet of German bank names. A previous 2002 sterling deal for GECC had generated a lot of demand and had tightened to Gilts flat.

There is a fairly constant retail bid for sterling, but they wanted an issuer diversification. At 15bp over, GECC offers something in between the German banks at 20bp over and the EIB at 9bp through on the triple-A curve. We are already seeing a good take up on the bonds.

Market appraisal:

"...we haven't seen much in the way of short dated retail sterling issues for a while, and the market remains relatively difficult with the European flow very light.

However, GECC was a good name to bring after a lull in the market. It was correctly priced at 15bp over, and at $100m it is not a large position to manage -- in fact. appropriate for the current flow."

"...Deutschmarks is the most buoyant of the European currency sectors at the moment. Spreads on sterling bonds have widened considerably due to the lack of retail interest, as investors became less comfortable with the currency.

The old GECC bond was trading at 2bp over, but that was launched in June when there was huge European interest in sterling. There's nothing wrong with 15bp over, but the level of demand for this kind of product will make it a tough sell."

"...there is an awful lot of paper in the sterling market at the moment and there is not a lot of European buying. The market did not need this deal. However, there could be some interest from Switzerland, where investors are much keener to buy new issues than buy from the secondary market. UBS will be pushing it through its Swiss branches, and they should have little difficulty placing their paper."

"...sterling flows have very slow, but GECC is a great name and also a corporate -- something we haven't seen in the sector for some time.

The recent weakening of sterling seems to be rekindling interest from Switzerland and Germany. Our ticket is going to German retail."

Domestic issuance

* Grantchester Finance plc

Amount: £100m

Maturity: April 30, 2020

Average life: 2014

Issue price: 99.368

Coupon: 7.375

Spread at launch: 80bp over the 8% 2015 Gilt

Amortisation: from 30/04/2006

Launched: September 18

Sole lead: BZW

Bookrunner's comment:

This deal is a development in the debenture market that we think both issuers and investors will increasingly focus on. The structure stresses the quality of the tenants and the cash flow on the leases.

The transaction is secured over a portfolio of property assets -- 10 out of town retail warehouse properties which taken together have an average lease of 22 years. There is a covenant on the cash flow where the portfolio must meet 1.05 times debt service cover. In the event of a withdrawal or substitution of the property, or new borrowing, cash flow has to meet 1.35 times debt service for the life of the security. In the event of a substitution of a tenant, the new tenant must meet certain quality criteria.

Therefore, the deal emphasises the quality of the cashflow, tenant quality and the debt service cover. Investors are increasingly comfortable looking at secured debt on that basis, rather than on a single-asset value criteria. We marketed the transaction to a number of investors both in London and in Scotland.

The bond has a final maturity of 2020, but it has amortisation over life commencing 2006, to give an average life of 17 years.

We priced the deal at 80bp over the 2015 Gilt, which was the right level to attract institutional investors. There has been limited mortgage debenture supply recently, so investors were pleased to see the transaction.

* Great Portland Estates plc

Amount: £100m

Maturity: October 29, 2027

Issue price: 98.541

Coupon: 7.25%

Spread at launch: 70bp over the 8% 2021 Gilt

Launched: September 16

Lead mgr: ING Barings

Bookrunner's comment:

Great Portland, like most of the UK property sector, accesses the mortgage debenture market on an occasional basis. The proceeds of this transaction will be used to finance the development and refurbishment of properties in the general course of business.

The debentures are secured on a portfolio of light industrial offices outside the UK's major cities. We are pleased we were able to price the coupon at 7.25%, the lowest ever on a property debenture, to yield 7.37% over 30 years.

The bonds were distributed by Cazenove to the usual investors in this kind of deal -- pension funds who are familiar with this credit.

Asset backed securities

* Residential Property Securities No 5 plc

Class A1 notes: £100m

Rating: AAA (S&P)

Legal maturity: November 24, 2023

Weighted average life: 1.1 years

Issue/fixed re-offer price: 100.00

Coupon: three month Libor plus 7bp until August 24, 2004; three month Libor plus 14bp thereafter

Call option: at par from August 24, 2004

Class A2 notes: £178.75m

Rating: AAA (S&P)

Legal maturity: November 24, 2023

Weighted average life: 5.1 years

Issue/fixed re-offer price: 100.00

Coupon: three month Libor plus 14bp until August 24, 2004; three month Libor plus 35bp thereafter

Call option: at par from August 24, 2004

Class B1 notes: £17.6m

Rating: A (S&P)

Legal maturity: November 24, 2023

Weighted average life: 6.9 years

Issue/fixed re-offer price: 100.00

Coupon: three month Libor plus 35bp until August 24, 2004; three month Libor plus 70bp thereafter

Call option: at par from August 24, 2004

Class B2 notes: £3.65m

Rating: BBB (S&P)

Legal maturity: November 24, 2023

Weighted average life: 6.9 years

Issue/fixed re-offer price: 100.00

Coupon: three month Libor plus 75bp until August 24, 2004; three month Libor plus 150bp thereafter

Call option: at par from August 24, 2004

Launched: Friday September 12

Lead mgr: ING Barings

Note: Secured on a pool of UK residential mortgages originated by Bank of Ireland.

* Professionals in the sterling market were surprised when an anticipated £200m issue for the UK's Granada group failed to materialise.

BZW was reported to have been premarketing the 10 year deal on Wednesday at a spread of 75bp over Gilts, although BZW officials denied a mandate had been awarded and that any deal was imminent.

One explanation canvassed by other banks for the deal not coming to the market was the difficulties of launching a deal of this size for a Baa2 rated credit in a strongly rallying market.

However, it was also suggested the deal had met some resistance from UK institutions which recalled a previous Granada issue, due 2019, where the covenants on future borrowings had been relaxed after consultations with investors and replaced with interest cover covenants.

Some investors were not prepared to buy the new deal as they had not been compensated for the removal of the covenants on the previous deal and Granada had failed to substantially reduce its borrowing levels with the sale of the Forte hotels.

However, Granada was said by bankers to be continuing to monitor the market and a deal remains likely to emerge when conditions improve.

Eurosterling secondary market

Compiled by HSBC Markets, London. Tel: +44 171-488 1733.

The main focus for sterling investors this week was the rally in the government markets, and Eurosterling not unnaturally took something of a back seat. There were three new issues over the course of the week, however, although at £100m apiece they did not represent a major inflow of new paper.

The five year from GECC was aimed at the continuing demand from continental investors for better quality names, and this business has formed the mainstay of turnover over recent weeks. Buying interest also came in for five year corporate paper and the zero to two year area was well bid towards the end of the week, as a number of investors chased what has been an illiquid part of the curve.

The long end saw some unaccustomed activity, with two secured property deals reaching the market within three days of each other. Spreads reacted by softening and demand in the secondary market remains sporadic.

The main mover of the week was Thorn 2007, on news of an adverse legal ruling in the US. Sentiment remained positive while the spread moved out 25bp in reaction, the company waited for a favourable result on appeal and for the few remaining outstanding cases in the US to be settled for a fraction of the amounts originally suggested.

Gilt market review

Compiled by HSBC Greenwell, London. Tel: +44 171-260 9664

The UK Gilt market had a remarkable week, breaking out of its recent range with the December long Gilt future, to closing almost three points up on the week at 117-25/32nds (last week's close of 115-3/32nds).

The upward move was fuelled by excellent PSBR figures indicating a reduction of Gilt supply and some rumours in the press that the UK government will have to make an announcement concerning their stance towards a single currency, before the UK takes up EU presidency at the beginning of 1998.

The UK 10 year benchmark outperformed the German 10 year benchmark by 17bp, with the spread closing at 123bp. Sterling made some ground against the Deutschmark to close at DM2.8695 from last week's DM2.8260.

The economic data out this week included the August PSBR figures, which came in well at £1.1bn, with the cumulative deficit (excluding privatisation proceeds) for the first five months of the fiscal year, at £6.6bn. This is less than half last year's figure, with most of the good news coming on the receipts side.

August retail sales were stronger at +0.4% m/m, with the annual rate at +5.6%. The labour market data was also stronger, with a £49K decrease in the unemployment figure and the rate falling from 5.5% to 5.3%. The average earnings for July also ticked up to 4.5%, from 4.25%.

These figures caused the short end of the Gilt curve to underperform as the mood on interest rates swung towards another tightening.

Overall, the CBI monthly trends survey for September was fairly weak, with more clear signs that the strength of sterling is hurting manufacturing.

The M4 figures were up 0.7% m/m, 11.6% y/y, showing strong underlying growth and giving little comfort to the MPC, as it is still well above the official monitoring range of 3%-9%.

Next week's data includes the balance of payments and trade figures for July and August. The treasury announced details of next week's dual auction. £1.5bn sterling of each of the 7% treasury stock due 2002 and the 8% treasury stock due 2021 will be auctioned.

The two year benchmark closed to yield 6.8%, a decrease in yield of 10bp and the five year benchmark closed to yield 6.7%, a decrease in yield of 23bp. The 10 year benchmark closed to yield 6.63%, a decrease in yield of 32bp, causing further inversion of the yield curve as investors sold shorter stocks and moved further out of the curve.

  • 18 Sep 1997

All International Bonds

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 JPMorgan 92.59 388 8.96%
2 Citi 85.30 278 8.25%
3 BofA Securities 63.15 265 6.11%
4 Barclays 58.01 223 5.61%
5 Deutsche Bank 55.74 184 5.39%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 60.87 123 14.06%
2 Credit Agricole CIB 28.59 93 6.60%
3 Santander 25.41 90 5.87%
4 JPMorgan 23.88 61 5.52%
5 UniCredit 21.51 103 4.97%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $bn No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 2.07 11 10.42%
2 BofA Securities 1.40 6 7.01%
3 Citi 1.37 7 6.87%
4 Morgan Stanley 1.36 6 6.85%
5 JPMorgan 1.31 7 6.59%