There have been some excellent one-off transactions in the European corporate investment-grade market in the past 12 months. German energy group E.On’s blockbuster multi-tranche deal last May, the largest ever from a European corporate, is an obvious example. Olivetti’s e400 million 30-year portion of its e3 billion multi-tranche deal in January, the first corporate euro-denominated 30-year deal, is also worthy of note. But finding a more consistently successful issuer is more challenging, particularly with the volatile market conditions that have typified much of this period. “Over the past 12 months, there has been a tendency for issuers to do one large, multi-tranche transaction while market conditions were good,” says a syndicate banker. “There’s not many that have had a steady borrowing programme.” Of the corporate frequent issuers in the market, none has consistently shone.
However, with its first transactions as a merged entity, the UK and Australia headquartered natural resources company BHP Billiton managed to shine twice. It established two highly successful liquid benchmarks in two currencies.
The first deal issued from the company’s newly established EMTN platform at the beginning of October last year was not only a great success for the company but a confidence boost for the European corporate market as a whole. It came at a time of great volatility when many other credits were having to pull planned transactions.
Not so for BHP Billiton: investors were impressed by the strength of this credit, which rated A3/A at the time and was even on review for an upgrade from Moody’s. In the end the e750 million five-year deal had a e1.3 billion order book and bookrunners Barclays Capital, BNP Paribas and Deutsche Bank priced it at the lowest end of the expected range at 55 basis points over mid-swaps.
The fact that the deal was oversubscribed in tough market conditions was even more impressive because BHP Billiton was the first mining company not to do an international debut in dollars before launching a euro deal. In fact, it had been planning a dollar deal for some time but was worried about the timing, so went into the euro transaction first. The strategy paid off.
The company felt the timing was finally right for a dollar deal this April and it proved to be spot on. Demand for such a rare and solid credit was so high, with a $4 billion order book, that the roadshow was cancelled. The 10-year SEC registered bond ended up at $850 million, increased from $750 million, and priced at 80bp over US treasuries, 10bp tighter than expected. “The demand was tremendous- five times oversubscribed with bonds sold to 130 accounts,” says Pippa Mason, head of UK and Ireland debt capital markets syndicate for Citigroup, one of the bookrunners on the dollar deal along with JP Morgan.
Given the amount of funds it needed and the positive market reception it encountered, the company did not need to issue in two currencies. But CFO Chris Lynch has consistently pointed out the company’s wish to diversify its funding sources. “They wanted to establish themselves with an actively traded benchmark in both currencies, which is exactly what they did,” says Mason. Now the company has a solid funding platform in both euros and dollars to turn back to as and when it needs it.
