The Euromarkets went global this week at Euromoney's fifth annual MTN conference. And flexibility and realism were the buzzwords. Panels from the top MTN houses thrashed out pertinent questions in the market and drew conclusions on the importance of league tables, the death of the structured market and whether BIS regulations are a mountain or a molehill. And there were another 10 panels to keep the audience happy. UBS Warburg kicked off the proceedings. The panel tackled the problems of event risk, and telecoms and utilities were high on the agenda. Gavin Eddy, head of MTNs at UBS Warburg, highlighted the problems of event risk for investors. He said: "It's a bit like buying a Ferrari and then discovering it has a Hyundai engine." Eddy was joined on the panel by Matthew Winch, European credit research at UBS Warburg, and Winch gave his thoughts on the problematic utility and telecom sectors. Winch said: "The financial risk is very much lower in the utility sector than the telecom sector. Telecoms are very cheap and they are going to get cheaper and cheaper. But there has to be more consolidation amongst utilities in Europe and that will lead to credit downgrades. There is not room for double-A rated utilities in a liberalized market." The troubled sectors were the topic for discussion for a second time during Morgan Stanley Dean Witter's workshop on making the right credit decisions. Neil McLeish, European credit strategist at the bank, proposes that utilities were no longer a safe haven from the volatile spreads of the telecom sector. He said: "There will be a movement to telecoms away from utilities. Telecoms will offer better value than utilities in the future." The workshop outlined Morgan Stanley Dean Witter's view that credit investors now look at a much wider range of factors than just traditional company credit analysis. But McLeish accepted that credit ratings still provide an important role. He said: "Ratings provide a useful starting point. And in a stable sector ratings do explain the difference in spreads at any one time." He continued: "Corporate spreads will remain volatile in the next few weeks. Disappointing central bank activity might cause spreads to widen further. But over the next couple of quarters I expect credit spreads to tighten." Deutsche Bank questioned the life of the structured note market in its workshop, and flexibility was the key word bouncing off the walls. Tiina Lee, head of MTNs at Deutsche Bank, said: "Tokyo has been the last bastion of the structured note over the past two years. The structured market certainly isn't dead. It is just going through a wholesale change." Ingvar Ragnarsson, senior funding manager at Islandsbanki-FBA, gave his advice on how to tap into the structured market. He said: "Flexibility is the key. Being responsive is also important. You must be quick to give a yes or no. Be clear on your funding strategy. I think you should do a big inaugural but not too big. You must follow it up with private notes. We are always there and that is important." Lee, at Deutsche Bank, agrees that having a constant presence in the market adds to success. She says: "As a dealer one of the biggest things is to be able to rely on the issuer on a day to day basis. Issuers also need to be flexible and transparent. You must be competitive and target levels realistic to the secondary market." Westland Utrecht did 31 yen trades last year, according to MTNWare, and Peter van der Hulst, senior dealer, treasury and funding at the bank, appeared on the Deutsche Bank panel to explain why they had seen so much structured issuance. He says: "When interest rates are low in a certain currency you get structured notes. In Europe we saw the CMS-linked note but this has now vanished. The same principle is happening in Japan. But we will not do any structure. For example we will not do equity- or credit-linked notes as this causes a solvability issue in the swap. Plus we do not want our name connected with any potential defaults." And Japan was the focus in another panel. Salomon Smith Barney questioned whether the Japanese market was working for issuers. Chris Cox, MTN trader at the bank, told the audience that success in Japan hinged on response time. And Johanna Clason, deputy treasurer at SEK, was present to explain how SEK managed to issue 75% to 80% of its paper out of Tokyo. Clason said: "Japan is definitely our number one market. We want to be the quickest in the market. We are hungry and want to do business. We hate to lose trade. So do we win more business in Japan as a result of this? I hope so." Tiina Lee appeared for a second time on Merrill Lynch's open panel discussion on day two of the conference. UBS Warburg's Gavin Eddy, Klaus Svendsen of Morgan Stanley Dean Witter and Merrill Lynch's Anthony Everill joined her. The quartet broached subjects such as the value of league tables, the importance of dealer panels and the introduction of a standard fee. Eddy, at UBS Warburg, warned that issuers should be wary of league tables. He said: "They are a good indicator of who is doing business. They serve a purpose and are a necessary evil. But you need to look at the quality of the dealers' business." Lee, at Deutsche Bank, agrees. She said: "Tables are important but they are very much a starting point. Are they everything? No they certainly aren't." On the subject of fees the panel spoke of the European market being too fragmented. Eddy, at UBS Warburg, said: "Standard fees are a nice idea but the market isn't mature enough. There are an awful lot of dealers and we would need to see more consolidation for it to work." Lee, at Deutsche Bank, concerned with monitoring a fee system, agrees with Eddy. She said: "I am definitely keen on fees but the market in the US is far more controlled. Europe has a lot more reverse enquiry. A fee schedule here would be a lot more difficult to police." Discussing the value of dealer panels produced some unsurprising responses from the panel. Anthony Everill, head of MTNs at Merrill Lynch, said: "If you set up with just an arranger and basically have a free-for-all you run the risk that during quiet times you will not receive any dialogue or market colour from dealers. If we are a named dealer on a panel we do this as a matter of course for our issuers." Eddy, at UBS Warburg, also complained that dealer panels are too big. He said: "Issuers need to have a smaller managed dealer group to place an onus on the dealers to perform. The ideal number you should look for is five to six. You should only be a dealer when you can add value. It looks a lot worse to get knocked off after two years than never to have joined at all." But Bas Snijders, director of funding at SNS Bank, which has 14 dealers on its programme, disagrees. He thinks that a large dealer panel is not only healthy but intrinsic to diversifying an investor base. In his talk on Wednesday Snijders said: "You must market your facility. You are competing for the dealers attention. Look after your dealers and speak openly. Issuers should not chase the last basis point. In a good deal everyone wins." Stephen Miller, partner at Allen and Overy, surmised the feel of the conference during Dresdner Kleinwort Wasserstein's workshop on broadening currency issuer base. He said: "Having a Euro-MTN programme is a thing for grown ups. It is like a Ferrari. You can crash it easily and put the wrong fuel in it but if you handle it right it can be fantastic."
March 23, 2001
