Search results for

Only a few years ago, pricing a jumbo Pfandbrief was straightforward: once you knew the maturity, you simply extrapolated the spread from a relatively clean yield curve. Today, a host of unknowns need to be considered in the European covered bond market: Which legal framework applies? What is in the asset pool? And how liquid will it be? Here, Philip Moore reports on the issues driving this differentiation.

If name differentiation is now the leitmotif in the German Pfandbrief market, few if any issuers can claim to have done more to impress their identity upon investors than DePfa. Over the last 12 months, Depfa has done this in two ways. First, by cleaving itself into two, at a time - as its marketing campaign ceaselessly reminds everybody - when other banks seem to merge and merge and merge. Second, by projecting a new identity that aims, highly ambitiously, to reposition the bank within the capital market as an agency-style issuer à la Freddie Mac or Kreditanstalt für Wiederaufbau (KfW), and to distance itself from those borrowers in the Pfandbrief market that have traditionally been viewed as opportunistic rather than strategic.

Last year, Luxembourg's market for lettres de gage failed, once again, to live up to its potential, with new issuance volume contracting from Eu3.4bn in 2000 to Eu2.6bn in 2001. As analysts at SG put it in their review of the European covered bond sector in 2001, activity more or less "dried up" having "probably suffered from the prospects of amendments to the German legal framework and the adoption of new Irish legislation."

Beyond the narrow confines of one or two German cities, it would be difficult to find any banker who would seriously argue that the European covered bond market to have made the most impressive progress in 2001 was any other than the Spanish cédulas hipotecarias market. This progress was made on four fronts. First, the size of the market expanded rapidly, with total outstanding issuance rising from Eu5.5bn in 2000 to Eu13.5bn in 2001. Second, the number of issuers in the market doubled from two to four. Third, the cédulas market provided Europe with some welcome yield curve diversification, with Caja Madrid's Eu1bn 2016 transaction in June providing an elusive opportunity for investors to gain exposure to the 15 year maturity in the covered bond market.

Adelphia Communications' Century Cable bank debt took a hit Wednesday, falling from the 99 range to 98 1/4 - 98 3/4 after its earnings release disclosed more than $2 billion in debt under the company's "managed entities." Dealers moved roughly $20 million of the paper.

More than $10 million of Exide Technologies' debt traded down to the 62-64 range this week from 66 earlier this month as the expiration of the company's covenant waivers approaches. The company has waivers on its financial covenants until April 12 and traders believe the company might opt to file for bankruptcy protection.

Hughes Electronics' $600 million add-on has been well received with $20-30 million trading at par to 100 3/8 since the paper broke into secondary market last week. One dealer said the paper is believed to have traded as high as 100 1/2. Market players said the name was trading among its original bank group as buyers who were pared back on allocation look to fulfill their original hunger for the name.

Rotech Healthcare's $275 million deal broke for trading midweek with roughly $50 million trading in the 100 1/4-100 3/4 range. During syndication the oversubscribed deal was highly popular with institutional investors looking to scoop up the recently spun off Integrated Health Services subsidiary. As a result, buy-side allocations were said to be slim (LMW, 3/18).

Tatsuya Takeda, v.p. in the e-markets group at JPMorgan in Tokyo, has joined Nikko Salomon Smith Barney in a new position as a director of structured solutions in the fixed income group. He will be responsible for marketing exotic interest-rate derivative structures, according to an official at the firm. Takeda, who starts next week, reports to Ikuo Morimoto, head of fixed income in Tokyo. The official said the firm is looking to expand its presence in the structured products market because of increased demand, declining to elaborate. Morimoto declined comment.

Flowserve has tapped Bank of America and Credit Suisse First Boston to lead an upcoming acquisition financing deal after landing the Flow Control Division of Invensys for $535 million last week. "Flowserve was involved in an auction for the division last August, but pulled out after Invensys would not accept the bid," noted spokesman Sean Clancey. "We were very firm on valuations. In December Tyco International pulled back from their proposed bid and our chairman [Scott Greer] got a call to re-enter negotiations in late January," he added. Clancey declined to say how much debt would be involved in the acquisition, but said the company will have no higher overall leverage after closing than the current level, as measured by debt to EBITDA. Equity as well as debt will be used to finance the deal which is expected to close within two months, he noted.