Next, rated Baa2/BBB, announced that it would issued a 12 year benchmark transaction on Wednesday.
Bookrunners Barclays, HSBC, Lloyds and Royal Bank of Scotland gave initial price thoughts in the 210bp over mid-Gilts area at around 10.30am.
Soon after midday, the deal's order book had reached £850m.
The deal was priced at 205bp over the December 2023 Gilt, as the leads printed the £300m 12 year bond at 99.627 with a 3.625% coupon.
That gave a 10bp new issue premium according to CreditSights analysts. “We see fair value for the new 12 year bond at around 195bp referencing Next's 2021s and 2026s,” they added.
A banker on the deal put the NIP at about 8bp. “Concessions on sterling issues were wider two or three weeks ago with the ‘Brexit’ debate seen as more of a problem but polls now reflect a quite even situation,” he said about the potential impact on pricing from the June European Union referendum in the UK.
The banker added that undersupply in corporate sterling had helped create a “very good reception” from investors for Next’s new bond.
“It’s the perfect week to issue sterling,” said a banker away from the deal. “You don’t see much pressure from the ‘Brexit’ referendum, but this will surely change in the next few weeks.”
Proceeds are designated for general corporate purposes but Next has already said that it intends to refinance outstanding notes with further bond issuance.
Prior to this issue, Next had £825m of outstanding bonds. One of those is a £250m 12 year note, paying a 5.875% coupon, which matures in October this year.
“We intend to replace this with a further bond of between £250m and £350m,” Next explained in its annual report in January. “We are likely to have bonds and facilities comfortably in excess of our peak borrowing requirements. We are not currently planning to use any of these surplus facilities to fund further buybacks in excess of our surplus cash flow, however we would not want to rule out further buybacks in the event market conditions were favourable.”
Next funds its balance sheet with credit facilities of £1.3bn, including £550m of committed bank credit lines.
For the three months from February to April, Next said it was in line to generate £350m of surplus cash after deducting interest, tax, capital expenditure and ordinary dividends in 2016. “Of the £350m, we have returned to shareholders through share buybacks £181m and we paid a special dividend in February which amounted to £88m.”