Unibail, the French real estate company, was hailed by dealers as one of the surprising stars of the private market last year. After signing its euro3 billion ($2.68 billion) Euro-MTN programme in June 2000, Unibail did 11 non-syndicated deals by year's end. And after a low-key start to 2001, Unibail's issuance has come alive since September 11. Like every other area of the financial markets, the MTN arena has been vulnerable to the after-shocks of the attack on the US. But amid the uncertainty, Unibail has managed to find a niche in the market. From January 1 to September 10 2001, Unibail closed just six trades. But since September 11, it has found great demand for its paper -issuing eight times - and has been one of the most frequent single-A rated private corporate issuers in the market (see table 1). Certain trends made themselves immediately apparent after September 11. Investors were mindful of the possibility of credit spreads widening in the future. Consequently, one of the most visible inclinations was that investors were drifting towards higher quality safe-haven issuers, such as triple-As and utilities. But according to Jean-Philippe Blanche, group treasurer at Unibail, investors have been looking primarily for stability rather than high-grade credits. He says: "It is the maintenance of our single-A rating that has been the critical point for investors. In today's economic climate, our stable Standard & Poor's rating of A- is very strong. The uncertainty has come for those rated below this level where the spreads have appeared extremely volatile. This is something that investors do not have a strong appetite for." Lehman Brothers was added to Unibail's dealer panel when the programme was updated in June this year and has led four trades for the issuer since September 11. According to Brian McCarthy, head of Euro-MTN trading at Lehman Brothers, the single-A rated sector has been one of the most stable in the market. He says: "There was a significant knee-jerk reaction for triple-A rated front-end MTNs immediately following the attacks on the World Trade Centre (WTC), as investors were looking for a flight to safety. Single-A rated demand, however, remained and still is rock solid. It is in the triple-B rated sector where we are seeing demand on a case-by-case basis for one-off MTNs." But Philippe Risso, head of financial resources at Unibail, has seen investor interest shift away from a reliance on ratings over the past year. He says: "In the last 12 months the market has definitely become more focused on industry sectors rather than ratings. We have been less affected by the widening credit spreads than some companies in other sectors." The real estate sector was further boosted last month by the signing of HVB Real Estate Bank's euro25 billion Euro- MTN programme. Dealers agree that, because of the obvious nervousness surrounding trading immediately after the attack, those issuers that could afford to stay out of the market were doing so. But Unibail has not found it difficult getting the levels it wants. Blanche, at Unibail, believes that the key factor in this has been the secure nature of its cash earnings. These funds from operations are vital in the real estate sector as it indicates the ability to pay dividends. Blanche says: "For investors, Unibail could be viewed as a niche defensive investment, as it is underpinned by visible and predictable cash flows." For McCarthy, at Lehman Brothers, it is Unibail's domestic market that has been the key to its strong issuance. He says: "Unibail has been isolated from the events in the US for the most part, as a majority of the demand seen for its paper has come from the French investor base. For this reason, it only had to widen its spreads by five basis points after the tragedy in order to see good incremental demand for the deal that we wrote for it back in July. This was a very small premium to pay given the spreads in the broader markets." Blanche, at Unibail, agrees that the stability in its home market has helped its trading. He says: "Despite a tight credit spread depreciation of the real estate sector in Europe, France appears to be less exposed." Blanche also cites Unibail's strong economic fundamentals together with its low levels of redundancies stemming from restructuring. A steady ship is clearly important to the issuer. Blanche continues: "Our leading position in France in each of our business lines generates stable guaranteed cash flows going forward which should be seen by investors as a strong measure of security." But while Unibail's reputation has been built in its domestic market, it has looked further afield. A two-year ¥1 billion ($8.31 million) non-callable trade last month was testament to its future potential among a wider investor base. And, after making its name in the private market, Unibail made its first public trade in January with a five-year euro400 million note via BNP Paribas and Merrill Lynch. But for the immediate future, Risso is more than happy to concentrate on non-syndicated trades. He says: "We were very happy with this public trade, but we think that the private placement market is large enough to refinance our needs for now."
November 23, 2001
