* Fears dispelled that the end of QE could shut market
* Crossover and Triple B names dominate flow
* High yield companies take second chance
* Premiums creep up to support secondary
By Josie Cox
LONDON, July 12 (IFR) - Oversubscribed order books and a flood of deals from Triple B and Crossover names have rekindled confidence in the corporate bond market, suggesting that issuance from all parts of the rating spectrum could remain robust if premiums stay adequate.
Only weeks ago, analysts were forecasting that the closure of the Federal Reserve's stimulus taps would shut the new issue market to all but the top rated companies, but dovish rhetoric from Chairman Bernanke and the European Central Bank seem to have pushed those fears to one side.
This week's more than EUR7bn of corporate supply has included five Triple-B deals worth EUR2.4bn from issuers like Adecco and Vivendi. Crossover Italian carmaker Fiat and German tyre maker Continental printed EUR1.6bn of bonds and other high yield issuers sold an additional EUR2bn.
Both Continental and Fiat attracted books in excess of EUR3bn and Vivendi's topped EUR5bn.
Italy's Amplifon, meanwhile, proved unrated issuers from the periphery have access to the market too, pricing a debut EUR275m bond with relative ease.
In the high yield market, French laboratory group Unilabs resurrected a EUR685m bond that was derailed by market volatility in May.
"The Fed's announcement relating to the phasing out of QE caught the market off guard," Wesley Fallan, syndicate official at Lloyds said.
"Since then though, we've seen a step-change in new issue concessions and providing they are adequate, all kinds of deals can get done."
CAUTIONARY TALE
The backdrop is certainly more positive. The iTraxx Main and Crossover had spiked to multi-month highs in June, and volatility in the S&P 500 shot up by almost 30%, but the credit indices have tightened by 17.5% and 18% respectively over the last two weeks.
The downside for issuers is that new issue premiums have crept up.
But they have not risen to the extent that borrowing costs can be considered expensive given that rates remain at historic lows. Instead, they seem to have been added more as a precautionary measure to attract interest from investors.
Fiat offered one of the highest concessions of the week on its EUR850m long six-year bond, but at 50-60bp, that premium was relatively close or even below what the issuer paid back in March when it priced a EUR1.25bn five-year bond.
Triple B issuers, meanwhile, paid between 12bp and 20bp this week, compared to 5-10bp a couple of months ago.
Strong books have instilled confidence that market technicals remain strong - a view further reinforced by deals like Fiat's strong secondary market performance despite S&P's downgrade on the sovereign after the bond had priced.
"There is still appetite for crossover names from high grade accounts looking to boost their returns, and at the same time high yield accounts still have enough cash to put to work in the crossover sector," said Fred Zorzi, joint head of global syndicate of BNP Paribas.
"In May the market very much became an investor-driven one, but recently we have witnessed a return to a much more balanced state."
The majority of Triple B issuers have not even had to include downgrade step-up clauses in their documentation.
"Corporate credit is still the asset class of choice even after a volatile month in June," said Jens Vanbrabant, a portfolio manager at ECM Asset Management.
"New issue premiums have increased, but I would not say that the pendulum of power has completely shifted to investors," he said. (Reporting by Josie Cox, editing by Natalie Harrison and Julian Baker)