Top quality issuance continued to dominate the market this week as investors sought refuge in low risk credits. Hopes of a revival in the corporate sector, meanwhile, were given a boost by the strong performance of the first trickle of new supply since September 11. Supranational, sovereign and agency dollar issuance this week amounted to $12.5bn, on top of the $10bn launched last week, demonstrating the depth of demand for top quality paper amid a period of uncertainty in the markets. Further liquidity will be provided today (Friday) when Fannie Mae prices its $7bn dual tranche Benchmark offering. The three and 10 year tranches had been due to be priced yesterday (Thursday). KfW, EIB and Federal Farm Credit all launched globals, while Bank Nederlandse Gemeenten and the Republic of Austria contributed fresh supply in the Eurodollar market. Freddie Mac followed its $5bn 10 year Reference Note sale last week with a Eu5bn January 2012 EuReference Note on Wednesday via Dresdner Kleinwort Wasserstein (DrKW), Goldman Sachs and Schroder Salomon Smith Barney (SSSB). In the covered bond market, Compagnie de Financement Foncier launched the longest ever issue of obligations foncières, a 20 year offering via BNP Paribas BNPP) and CDC IXIS. Signs of a renaissance of interest in the corporate sector were visible this week as the first transactions from the pre-September 11 pipeline emerged to a warm welcome from investors. Oilfield services provider Schlumberger (Aa3/AA-) proved that investors are prepared to look at cyclical businesses if supported by strong ratings and careful preparation. The company raised Eu2bn equivalent in four tranches denominated in euros and sterling. The deal was seen as a litmus test for other corporates waiting in the wings and, in the primary phase, was judged as having passed with flying colours. UK tobacco company Gallaher Group launched its Eu750m five year benchmark via BNPP, DrKW and JP Morgan. The tobacco sector has performed strongly in the last two weeks as investors have looked for defensive, non-cyclical sectors. While the 135bp spread over mid-swaps was at the wide end of initial price talk of 120bp-140bp. A forthcoming issue from Baa1/BBB rated Pilkington will provide the market with a sterner test. The UK glassmaker completed roadshows this week and will probably launch its Eu500m seven year transaction next week, with market price talk in the 175bp over mid-swaps area through lead managers Deutsche Bank and SSSB. Dow Chemical should be next in line, the A1/A company preparing to launch the inaugural issue off its recently arranged Eu2bn EMTN programme. Deutsche and JP Morgan have the mandate. Lafarge has finally awarded the mandate for its benchmark euro issue, to ABN Amro, BNPP, HSBC and JP Morgan. The issue is expected in three weeks' time. CNCA aims to build on a small revival in the subordinated bank sector. It has awarded the mandate for its forthcoming subordinated euro transaction to CAI. JP Morgan and Morgan Stanley will be senior co-lead managers on the sale. BNP Paribas will meanwhile launch its Eu250m-Eu300m tier one transaction on Monday. The perpetual non-call five year deal will be priced with a 7% coupon. Centrica, which had postponed its roadshow due to take place on September 12, will start presentations next week ahead of its long awaited sterling issue. And Leeds United Football Club has announced plans to launch a £60m 25 year bond to refinance short term debt that accumulated as the club built up its playing staff. No mandate has yet been awarded.
September 28, 2001
