SPREAD volatility and equity market gyrations created a challenging background for the few issuers willing to brave dollar markets. The only issuance was global, from US borrowers looking to leverage strong domestic demand and entice European and Asian investors. Most successful at this was Fannie Mae which this week launched a rare seven year benchmark, a $4bn 7.125% March 2007 transaction that enjoyed robust overseas demand, with some 15% of its bonds placed in Europe and 27% in Japan. During premarketing, Fannie Mae indexed its new bond off an existing Fannie Mae issue. This pricing approach was mimicked by Ford on its $3bn five year fixed rate bond - the first corporate to adopt this methodology. Ford borrowed $5bn in total, the remaining $2bn via a three year floating rate note. A newcomer to the global arena, US financial giant CIT Group, received $2.5bn of orders for its $1bn 7.375% March 2003 transaction, more than justifying an increase to $1.3bn. The deal was priced at 86bp over Treasuries, inside the 87.5bp price talk. Both Argentina and Israel tapped the dollar market and Poland paved the way for a host of other central and eastern European borrowers to tap the euro market. By comparison, borrowers in the high grade euro market were more modest in their ambitions. But the equal largest transaction of the week was an Eu1bn 10 year benchmark from Land Sachsen-Anhalt. The issuer continued to build its reputation as the most international of the German states in its funding strategy and the 40bp spread over the 5.375% January 2010 Bund proved sufficient to attract overseas demand. The leads placed 80% of their allocations outside Germany, 10% into Asia and 4% into the US. Investors continued their love affair with single-A and triple-B rated credits; in the corporate market Sonera issued a Eu1bn five year deal. The single-A rated Finnish telco launched its benchmark after roadshows explaining the company's standalone strengths and investors reacted positively to Sonera's credit story. BPB raised Eu400m of 10 year funds and became the latest in a string of A3/BBB+ rated companies to win over investors. Thorough preparations and credit work paid dividends and the spread quickly tightened from 115bp over the Bund to 113bp over, after price talk of 115bp-120bp over. Although not a corporate, US finance company Heller Financial attracted demand for single-A paper with a Eu300m five year issue. Priced at 77bp over the Bobl, the deal performed after being oversubscribed and tightened to 75bp over. After Rheinhyp's successful Eu3bn 10 year global last week, jumbo Pfandbrief issuance continued to pick up. DePfa increased its 10 year global by Eu1.5bn, Eurohypo upped a six year bond by Eu1.466bn and next week ABN Amro, Commerzbank and Deutsche will increase Essenhyp's February 2007 deal by Eu2.25bn to take it above the Eu3bn required for EuroMTS eligibility. But the highlight of next week should be Portugal's new five year OT benchmark. ABN Amro, Merrill Lynch and Salomon Smith Barney have won the prestigious mandate. Portugal's August 2004 OT trades at around Euribor minus 5bp. Euro FRN issuance almost ground to a halt this week, with just two sole managed issues hitting the market, but next week Warburg Dillon Read and WestLB should launch a Eu300m five year floater for Banca Carige. British media group Daily Mail & General Trust will next week bring some much needed corporate supply to a sterling sector dominated once more by triple-A issuance. The £150m-plus 10 to 15 year transaction will be issuer's first foray into the bond markets since it raised £75m via a convertible bond in 1997. HSBC and Merrill Lynch are mandated to launch the deal early next week. The African Development Bank is said to be accepting bids for a ¥50bn 10 year global transaction, following KfW's ¥100bn issue which targeted the same maturity.
March 10, 2000
