Corporates returned to the euro sector this week. The positive reception to the week's two major deals suggests that investors whose appetites were last year whetted by the growth of the credit market remain hungry for single-A and triple-B names. Pearson reopened the market last Friday, with the launch of a Eu650m seven year at 82bp over the Bund. The owner of the FT was seen as the ideal candidate to test the market. "Pearson has already tapped the euro market so it is already known and it is in an industry sector where there is little paper available," said one syndicate manager. The deal performed well, tightening 1bp on the day of launch and a further 2bp over the week. But OTE stole the show a few days later with the launch of a Eu800m seven year - the first euro deal for a Greek corporate. First talked at the beginning of the year in the high-50s over Euribor, the issue was priced to re-offer plus 50bp and then tightened several basis points. The combination of telecoms and Greece proved hard to resist on the back of the country's improved prospects for Emu membership. "A spectacular debut for a borrower coming from an underexposed country and a much talked about industry," was how an official at one of the leads described the transaction, and others agreed. The success of the two deals bodes well for a growing pipeline of lower rated corporates circling the market. "Investors are looking for spread and are willing to pay up for names like OTE and Pearson," said a banker. "They are willing to give up some relative value to get the juicy spreads that single-A and triple-B names offer." Triple-B rated Heidelberger Zement is readying its Eu1bn seven year issue via Deutsche and Dresdner and early price talk is of Euribor plus the mid-60s. Baa2 rated US chemicals and fibres company Solutia has mandated Salomon Smith Barney (books) and Bank of America for a euro debut following roadshows. Both Dow Corning and Fiat are still looking at issues. And next week BNP Paribas will launch a Eu200m October 2005 deal for Austrian utility Energi AG in the mid-30s over the matching Bund. But higher rated and frequent borrowers may find the market difficult. Essenhyp finally launched its Eu3bn global this week, but was forced to stick to the very short end, issuing a two year jumbo Pfandbrief. The defensive stance in the markets was highlighted on Wednesday when Eu4.5bn of dollar and euro FRNs hit the market. AdP should soon mandate its Eu400m long dated transaction for launch in a couple of weeks, and 3CI is looking for ideas for a mid- to long dated issue. Rare liquid globals from the IADB and the World Bank dominated the fixed rate dollar market. The IADB launched its largest ever transaction, a $2bn 10 year lead managed by Merrill Lynch and Morgan Stanley and succeeded in expanding its US investor base. The World Bank brought its much vaunted e-bond, the first transaction to be fully sold and traded electronically. The $3bn five year deal went well at 48.5bp over Treasuries but bankers questioned the efficacy of e-distrubution. Talk in the street suggested that syndicate members took only one or two orders over the internet and, instead of improving its funding costs, the supranational is said to have achieved only 11bp or 12bp under Libor. Lehman Brothers will price a $1bn five year global transaction today at around 120bp over Treasuries via Lehman and GECC will launch a $750m five year global via joint leads Goldman Sachs and Merrill Lynch. Price talk on the GECC is 63bp to 64bp over Treasuries. The sterling pipeline continues to build with long end deals for Thames Water (£150m to £200m) and Rabobank said to be in progress. Standard Life Bank, a wholly owned subsidiary of Standard Life Co, has mandated Barclays and Deutsche to launch its debut in the international bond market with a £200m five year FRN. Finally, Lloyds will launch only the second ever tier 1 capital issue for a UK financial institution, a £500m two tranche deal in euros and sterling. Lehman and Goldman will lead the euro issue while Warburg will join Goldman for the sterling.
January 21, 2000
