The opportunistic window is rapidly shrinking for businesses

Call it deliberate optimism, but some bankers are still mulling the possibility of a deal in the corporate market before the Federal Reserve makes its final rate announcement.

No company has issued since June 8, when Merck, A2A and Duke Energy raised a total of 2.7 billion euros. A bank staged four go/no-go calls on Monday, but no trades emerged as rates markets rose sharply after last Friday’s US inflation.

One company, Rentokil Initial (BBB, S&P), is in the public pipeline. It markets a bid-currency offer, made up of five- and eight-year euro banknotes and a 10-year sterling share. The UK pest control company ends a two-day investor call today via Bank of China, Barclays, Bank of America, HSBC, ING, Santander, SEB and Wells Fargo.

“Maybe there will be a corporate deal tomorrow before the Fed meeting?” said a union banker, who is a leader in the Rentokil business. But he acknowledged that these were “difficult times”.

“The calls [on Rentokil’s deal] are doing well, but people are worried about the market,” he said.

Corporate spreads on the euro market reversed their tightening from late May to early June, widening more than 8bp to 105.7bp on Monday from last Wednesday, according to iBoxx. Average spreads peaked at 111.2 basis points on May 23, the highest level in nearly two years.

Another lead on Rentokil said investor calls focused on the company’s acquisition of US competitor Terminix, while the timing will depend on improving market sentiment.

“We haven’t seen any trades since last Wednesday, so there aren’t many data points, although there has been some supply in the SSA and covered bond markets. Apart from those here, there is always a lack of data points,” he said. .

Sinister picture

The SSA market data points paint a bleak picture for issuers and it won’t be long before the higher premium that public issuers have to pay to secure their deals trickles down to the corporate market. On Tuesday, the EFSF paid around 5bp to 6bp to get €2bn over 10 years, but the pounds were only covered in the last update at over €2.7bn. The new issue premium for companies could thus reach 25bp. Additionally, some trades from the past week are broader, the second banker said.

Italian utility A2A’s €600m four-year green note, for example, was offered at around 124bp on Tuesday, widening more than 30bp from the re-offer, according to Tradeweb. Duke Energy’s two-tranche deal, however, was seen as tighter by 1bp, while Merck’s two-tranche deal was widened by around 5bp.

As bankers hope for a green day to emerge to print some of the pent-up supply, corporate bond sales could remain subdued for an extended period in the face of the summer break, when liquidity is likely to be even thinner. .

“We are not far from the summer period, so the issuance windows could close quickly. years,” said Gordon Shannon, portfolio manager at TwentyFour Asset Management.

“No one is that desperate and companies are pre-funded enough to be picky about price points and afford not to pay the desperation premium.”

Sales of investment-grade euro corporate bonds are already down around 22% from the same period last year to 140.3 billion euros, according to IFR data. This year’s figure is also lower than the average sales volume of the past five years, at 180.5 billion euros.

Source: IFR

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