Volatile swap spreads continued to undermine new issuance this week but many borrowers were not to be put off. This was demonstrated by Brazil's launch of a $1bn 30 year global - hardly a typical transaction for a troubled market. Higher up the rating scale, KfW launched a $2bn five year global that, although buffeted by the swap spread widening of Thursday, successfully tapped into demand across Asia, Europe and the US. The German agency took the unusual step of marketing and benchmarking its transaction over the US agency curve, finally pricing at 9bp over the Fannie Mae February 2005 Benchmark Bond. At this level, it equated to 61.5bp over Treasuries. The bond widened to 64bp after launch, but retained its 9bp spread over Fannie Mae. The EIB is said to be readying a similar transaction but is unwilling to compromise on its funding targets which, in the current market, would put the deal several basis points through KfW. The US CIT group has mandated Lehman Brothers and Warburg Dillon Read to lead manage its debut global bond, a $1bn short to intermediate transaction, in the near future. The deal will be preceded by roadshows in Europe and the US. CIT, the world's largest commercial finance company, is rated A1/A+. AIG SunAmerica will further develop the GIC market by launching the first global bond to come from the sector. The $1.5bn five year issue has been awarded to Merrill Lynch which will launch the deal as soon as market conditions permit. IFC is also planning a $1bn plus five year global bond via HSBC and Merrill Lynch while Spain is said to have mandated Goldman Sachs and a European house to lead its $1bn five year global transaction. The most sought after mandate of the week was arguably the lead manager role of Marconi's debut capital market offering. The Eu1.5bn two tranche issue was awarded to ABN Amro and Warburg Dillon Read and will be launched following a European roadshow. Marconi is a leading global telecom and information technology group and is rated A3/BBB+. Conglomerate Invensys will roadshow in early March before launching a Eu500m five year transaction via Deutsche and Warburg Dillon Read. And ETSA, South Australia's monopoly power distribution, has mandated Barclays, HSBC and Warburg to launch a sizeable two tranche euro issue. The highlight of this week's euro activity was a Eu2.5bn blow-out from Greece. The 10 year was upped from Eu2bn and priced at Bunds plus 53bp - at the tight end of price talk and a mere 10bp over Euribor. As well as reaffirming European investors' appetite for sovereign paper, following Finland's hit last week, the transaction demonstrated the rampant demand for all things Greek - and PPC could take advantage of such interest next month when it might return to the market for Eu300m. Elsewhere subordinated activity was buoyant as several borrowers tapped into demand for higher yielding assets. Nationwide launched a rare PIBS transaction in the sterling market and further subordinated supply is in the pipeline. Lombarda's long-awaited Eu150m tier 1 issue via Lehman Brothers is nearing the market. The deal has been on-off for the past four months and its structure has been changed twice. Fuji Bank is expected to add to the supply from the Japanese subordinated bank sector with a $1bn Eurodollar offering. The deal was initially premarketed as a euro-denominated Eurobond, but the response from investors was poor. Whether the new structure will transform the deal, which will be towards the lower end of the credit spectrum for Japanese sub debt transactions, remains to be seen. Royal Bank of Scotland, meanwhile, is drawing towards the launch of its £1.4bn equivalent tier 1 transaction. The deal, which Goldman Sachs and Merrill Lynch are jointly lead managing, is expected to include tranches in dollars, euros and sterling. RBS is raising the financing in order to address the impact on its capital ratios of its takeover of UK clearing bank NatWest.
February 25, 2000
