EURO CORP-Corporates undeterred by stalled rally


By Josie Cox and Natalie Harrison

LONDON, Oct 31 (IFR) - Corrective widening in credit markets failed to throw a spanner in the works of a nascent primary revival as Volkswagen Leasing drew strong demand for a EUR1.5bn bond and Faurecia launched the first public high-yield bond from a debut issuer since July.

Volkswagen Leasing had managed to attract in excess of EUR6bn in orders by the time books closed around 09:30 GMT on the dual-tranche deal via Barclays, BNP Paribas, RBC, Danske and BayernLB.

The shorter EUR750m three-year tranche will be priced at mid-swaps plus 68bp, from initial guidance of plus 75-80bp, and the longer EUR750m 6.5-year tranche will be priced at mid-swaps +115bp, revised from initial guidance of plus 125-130bp. Interpolating the group's existing curve implies new issue premiums at around 10-15bp and 20-25bp respectively.

"The deal looks like it will be priced sensibly, but the issuer and leads probably decided to go before the market entered corrective mode," a syndicate banker away from the deal said, adding that as a strong name Volkswagen will likely see strong demand.

By 11:35 GMT, the iTraxx Main was trading 8bp wider at 158.5bp, having hit 145bp on Friday.

Elsewhere, Monday saw the start of a non-deal roadshow by Australia's top phone company Telstra.

HSBC, BNP Paribas, Deutsche Bank and Credit Suisse are individually arranging the meetings to be held in London, Paris, Frankfurt and Zurich respectively.


The Crossover index was trading 26bp wider at 646bp but France's Faurecia, the car parts group owned by Peugeot, pressed on with plans announced back in May to diversify its funding away from banks with a EUR300m five-year high-yield bond.

"The high-yield bond market has been pretty much closed, but we are more of an industrial company, and have a good investment story," said Eric-Alain Michelis, director of investor relations of Faurecia.

"Investors are sitting on a lot of cash and want to invest in companies that are growing, rather than those that are rolling over debt because they are overleveraged."

A week-long roadshow for the bond -- expected to carry a Ba3 rating from Moody's -- kicked-off in London today via joint bookrunners BNP Paribas, Credit Agricole, Natixis and Societe Generale and is expected to price by Friday.

The proceeds will help the company diversify funding away from banks and to extend its debt maturity. It will also replace a EUR250m credit line put in place by Peugeot when four banks walked away from lending to Faurecia after the company breached loan covenants in 2008.

Since then, the company's financial profile has improved dramatically. The ratio of net debt to EBITDA was 1.19 times at the end of June and the company reported a 15.9% rise in third-quarter sales last week. That helped to underpin overall sales at Peugeot which warned on profits last week and said it was cutting 6,000 jobs.

The refinancing includes a new EUR1.15bn syndicated credit facility provided by nine banks -- BNP Paribas, Credit Agricole, Natixis and Societe Generale as bookrunners; Bank of Tokyo-Mitsubishi, Credit Mutuel, Commerzbank and HSBC as lead arrangers and Citigroup as arranger.

Faurecia also accessed the schuldschein market last week to further reduce its dependency on French banks, the spokesman said.

The Faurecia bond will mark the first euro-denominated high-yield deal from a debut issuer since July, when Italy-based Bormioli and Capsugel accessed the market before issuance windows slammed shut.

It will represent the first benchmark high-yield deal since the end of September, when well-known German construction group HeidelbergCement priced a EUR300m seven-year senior unsecured bond.

"It's expected because many have said that once the Crossover resistance level is broken, high-yield will be back," one syndicate banker away from the deal said.

"I think that this could signify at least the start of the re-opening of the high-yield issuance market."


The handful of issuers that entered the primary market last week were predominately trading tighter on Monday and multiple syndicate bankers said that this was also helping sentiment.

"Last week we saw a number of successful deals. Granted, Tesco for example, was not ideally priced, but generally the activity was a positive sign for issuers and investors," one syndicate banker said.

The UK retailer Tesco last week priced a EUR750m seven-year via Bank of America/Merrill Lynch, BNP Paribas, Goldman Sachs and JP Morgan, at mid-swaps plus 105bp, from initial guidance of 120bp. By Monday the bond was trading at about plus 75bp.

"Despite some hiccups, the pipeline remains intact," another syndicate official added.

"I can see one or two defensive names entering the market in the course of this week, but if conditions remain good and indices tight, I can even imagine a higher beta name issuing," the banker added. (Reporting By Josie Cox and Natalie Harrison)



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