In an atmosphere of near panic, investors sought to reduce their exposure to credit this week and corporate spreads widened dramatically on any piece of negative news. DaimlerChrysler bonds widened by around 30bp after the company reduced its 2002 earnings target. The rest of the auto sector moved out in sympathy, with Ford bonds in particular encountering strong selling pressure. Ford's recent 6% 2005 bond widened to 264bp over mid-swaps, having been launched at 170bp over. Telecoms spreads had their worst week since early September. In Europe, the focus was on France Télécom and Deutsche Telekom, their bonds underperforming those of their European peers. Spreads on FT widened by as much as 80bp-100bp against swaps, and even the more successful operators, such as Vodafone, moved out by as much as 18bp against swaps. Only one corporate braved the euro market - GIE Suez Alliance, which raised Eu1bn of seven year money at 68bp over mid-swaps, which was at the tight end of the 67bp-72bp price guidance. The deal, led by Citigroup/SSSB, Deutsche and Morgan Stanley, reportedly amassed an order book of Eu1.7bn without a new issue premium - an impressive result given the wretched market. The deal maintained its launch spread in the aftermarket while other deals continued to widen, a testament to the safe haven flavour of utility credits. Next week, EnBW will test investor appetite with its circa Eu1.5bn seven to 10 year bond via Barclays and Deutsche. Meanwhile, Union Fenosa's debut benchmark offering, via Goldman Sachs, is still in the wings, and one banker described it as a tough transaction to execute. A Eu500m five year deal is expected with pricing in the high 50s over mid-swaps. With such a punchy funding level, the market is expecting the deal to be aimed at a domestic Spanish investor base. EU Sovereigns stole the limelight this week: Greece, Italy and Portugal launched a combined Eu10.5bn of syndicated government bonds, taking advantage of the demand for high quality paper to build oversubscribed books and price their benchmarks inside their curves. Spain will next week announce the leads for its planned 15 year Bono. KfW has announced plans to launch its Eu5bn 10 year benchmark bond at the end of February or beginning of March following investor presentations to discuss its 2002 funding programme. Elsewhere, the pipeline is remarkably thin for February and is concentrated around financial issuers. BCP Finance Bank Ltd, guaranteed by Banco Comercial Português SA, is to launch a Eu500m 2007 benchmark. The deal will be led by Caboto IntesaBci, SG and BCP Investimento. Merrill Lynch and UBS Warburg will begin the roadshow for Northern Rock's benchmark floater on Monday. The deal is expected to be in the three to five year range and for Eu1bn. Natexis Banques Populaires is said to be preparing a self-led, Eu500m five year floater at 16bp-17bp over Euribor. And CDC IXIS, rated Aaa/AAA, is planning a $1bn three year transaction to be launched the week after next via ABN Amro, CDC and Merrill Lynch. The deal is expected to be priced in line with the recent LBBW three year, currently trading at Libor minus 1bp. Despite the jittery background, Enterprise Inns and Thames Water issued successful sterling bonds, Enterprise with a £275m September 2031 secured bond and Thames with a £175m 30 year index-linked transaction. The sterling pipeline includes Deutsche Apotheker- und Aerztebank (DAPO), which has awarded a mandate to Barclays Capital to lead its forthcoming floater. Bankers expect a three year deal of around £100m. GKN is expected to tap its 2019 deal shortly via Barclays and UBS Warburg, and Barclays and Deutsche Bank have the mandate to lead manage a seven year sterling bond for BOC.
February 08, 2002
