In a week governed by negative credit events, flight to quality was more evident than at any time since September 11. Standard & Poor's (S&P) downgrading of Ford and GMAC into triple-B territory sent auto spreads reeling and had an adverse affect on the whole triple-B sector. A massive profit warning by UK media firm Pearson caused its bonds to widen by over 40bp and created jitters in the credit market generally. The announcement of a $3bn minimum GlobLS transaction for Ford so soon after the downgrade and after reporting a third quarter operating loss of $502m took the market by surprise. The two tranche deal, targeting January 2007 and 30 year maturities, will be priced imminently by lead managers Bear Stearns, Credit Suisse First Boston and Salomon Smith Barney (SSB). Price guidance on the five year tranche is 275bp-285bp, representing a new issue premium of 20bp over outstanding bonds. The 30 year is expected to be priced at 275bp to 280bp over. The World Bank, Rentenbank and Italy were quick to take advantage of safe haven trades, issuing dollar global bonds into a receptive market. More high grade dollar paper is in the pipeline. Spanish agency ICO is expected with a five year issue via Morgan Stanley and SSB following roadshows, while Hamburgische Landesbank has awarded a mandate to Merrill Lynch and Morgan Stanley to launch its inaugural dollar global. The $1bn issue will have an intermediate maturity and launch will take place following international investor presentations. The borrower is rated Aa1/AA/AAA. Safe haven demand was also evident in the euro sector with KfW's Eu5bn three year note oversubscribed to the tune of Eu9bn. A spectacular spread was achieved by Novartis, the triple-A rated Swiss pharmaceutical company, on its debut bond, the five year issue being priced flat to outstanding KfW paper. The corporate pipeline is building steadily. New mandates this week include a Eu300m seven year offering by Sagess, the French EPIC that manages the country's strategic oil reserves. Merrill Lynch and Natexis have the mandate. Price talk on the bond is 5bp over swaps. Telefónica Europe is readying a euro benchmark, which will be launched through joint bookrunners BBVA, BNP Paribas, Invercaixa, JP Morgan and SSSB. The Eu2bn A2/A+ rated offering, to be guaranteed by Telefónica SA, will be launched after a roadshow later this week and will comprise two tranches: a three year FRN to be priced at around 80bp over Euribor and a five year fixed rate bond at around 100bp over mid-swaps. Spain's Ente Publico RTVE, rated Aa2/AA+, has awarded a mandate to BBVA, CAI, Caja Madrid and Commerzbank as joint bookrunners for a Eu500m three year floater. A source close to the deal said pricing will be below or very close to Euribor. Union Bank of Norway, rated A1/A, has awarded BNP Paribas the mandate for a 10 year non-call five lower tier two floating rate dollar deal, which is expected to be launched early next week. The bank hopes to raise $100m-$150m at a re-offer spread of 70bp-75bp over Libor. Investor interest in Marks & Spencer's forthcoming transaction is anywhere between 80bp-100bp over swaps for the Eu500m-Eu750m five year tranche and Gilts plus 160bp-170bp for the £200m-£250m piece. The deal should be launched next week. Following Centrica's success in the sterling market, Rentokil has reportedly awarded a mandate to Barclays and HSBC to launch a sterling bond to mark the company's assignment of a triple-B rating by S&P. Scottish and Southern has asked banks to pitch for a potential financing in sterling or euros, while Kelda Group has chosen UBS Warburg to lead manage a sterling transaction, which will be launched in the near future.
October 19, 2001
