Deals of the year 1999: Trend-setting and ground-breaking

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BONDS

Car giant carves its yield curve

Issuer: DaimlerChrysler

Deals: $2 billion 10-year Eurobond, $1.5 billion five-year Eurobond, $1 billion FRN

Date: August 161999

Bookrunners: Credit Suisse First Boston, Salomon Smith Barney

With its $4.5 billion three-tranche financing in August, DaimlerChrysler firmly put itself on the map as a newly merged entity. This was the second-biggest industrial company debt offering of all time.

And it was done at an awkward moment, bang in the middle of the holiday season when Argentina was looking decidedly shaky too. "DaimlerChrysler wanted to do it before the US Federal Reserve's open market committee [FOMC] meeting," says Andrew Brownfield, managing director at Credit Suisse First Boston, which was joint bookrunner with Salomon Smith Barney.

It was an "unprecedented marketing effort on the ground for that time of year", Brownfield adds.

DaimlerChrysler's aim was to set a benchmark yield curve at three different maturities: six months, with a $1 billion floating-rate note, priced over three-month Libor; and five and 10 years with fixed-rate tranches of $1.5 billion and $2 billion respectively. With three points on the yield curve established, and one hopes a liquid secondary market, DaimlerChrysler should be able to launch new financing deals in future at the most advantageous point of the curve. That's the theory.

The issuer was looking carefully at the secondary market yields of its peer group: Ford and GMAC.

"We gave initial pricing guidance off the Ford transaction," says Brownfield. This was to avoid the distortive effect of an imminent auction of US treasuries and, says Brownfield, "take one variable out of the transaction" - the basis risk between treasuries and single-A corporate debt.

DaimlerChrysler was able to issue within the Ford and GMAC spread, and that differential has been maintained: in mid-January Ford and GMAC were trading at 112 basis points and 114bp respectively over treasuries, and DaimlerChrysler was trading at a tighter 104bp.

By all accounts the issues were well placed, with much of the FRN going to Europe and more of the fixed-rate issue finding a home in the portfolios of US investors.