Spreads continued to drift wider in the dollar market following a deterioration in the emerging market sector, making life difficult for new Eurobonds and causing some borrowers to postpone their deals. Deutsche Ausgleichsbank for example was due to launch a $1.5bn five year global bond yesterday (Thursday) but its funding targets could not be met in the volatile swap markets. BNG fell victim to the rapid downturn in sentiment on Monday. Its $750m five year bond was launched in the morning at 63bp over. Swaps widened by 4bp to 5bp, forcing the bond out to 66bp bid and finally out to 68bp. The global sector continues to flourish however with strong support from domestic US accounts. The Ford $8.6bn financing is a prime example with its five year bond tightening by 2bp and the Bank One transaction tightening by a basis point. Wells Fargo should enter the global arena next week with a $1.5bn five year global bond next week via CSFB and Salomon. A spread in the 105bp area over Treasuries is expected. The euro sector was dogged by continued volatility in underlying government markets and oversupply as borrowers rushed into the market ahead of the summer break. Although the new issue calendar is at its thinnest for several months, the upcoming Eu6.1bn Tecnost issue is overhanging the market. Unrated deals fared worst as investors suffering from fatigue after being bombarded on all sides by corporate issues relied on ratings to save time on credit analysis. Although priced at levels consistent with officially rated deals, unrated issues for Continental and LVMH both failed to perform and further down the credit spectrum, bids for Telepiu's unrated Eu350m five year issue were erratic. Even DaimlerChrysler's first institutionally targeted euro failed to take off. Again, the issue was fairly priced, but widened a couple of basis points from the re-offer spread of 42bp. Carrefour and Manpower successfully bucked the widening trend, Carrefour with a Eu750m five year deal that maintained its 40bp over OATs spread, Manpower with a Eu200m seven year issue at 125bp over Bunds. British Steel is one of the few corporates still waiting to tap the euro market in the near future. A Eu500m 10 year issue is likely via ABN Amro and Dresdner after roadshows over the next week. The deal is related to its merger with Hoogovens. International Paper also hopes to launch a Eu300m seven year bond next week, if market conditions permit, following roadshows in Europe hosted by CSFB. And Alliance & Leicester is expected to launch a Eu300m-Eu500m FRN also next week lead managed by Lehman Brothers. Leading Greek telco OTE has asked banks to submit bids by next Friday for the lead management role on a planned Eu800m seven year issue in fixed/floating rate form for launch after the summer break. Some £10bn of redemptions on August 10 are creating opportunities for short dated sterling issuance but the World Bank caught the market by surprise by launching a £1bn transaction through Dresdner. Denmark is likely to issue a 2-1/2 year bond today (Friday) to target the same reinvestment flows. The £250m issue will be lead managed by ABN Amro in the 40bp over area. UK corporates Compass and Hilton Group successfully distributed intermediate term transactions but JFM's £200m 20 year bond, due to be launched on Thursday by JP Morgan, failed to emerge even though the spread had reportedly been widened from 80bp over to 90bp over the 8% of 2021 Gilt. But Scottish Power is expected with a £300m 10-1/2 year deal via Deutsche, HSBC and JP Morgan at 125bp to 130bp over Gilts. And Reinvestment Australian insurance company AMP is expected to launch a £150m 20 year non call 10 subordinated transaction via Merrill Lynch and Warburg Dillon Read. The deal should pay 185bp over the 5.75% 2009 Gilt to the call, then step up by 100bp with an investor option to take either fixed or floating. Royal & Sun Alliance is scheduled to bring a two tranche issue for the equivalent of £800m in US dollars and euros in connection with its purchase of Orion in the US for $1.4bn. n
July 16, 1999
