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SSE reopens primary market but will not spark a flood of corporate bonds

Corporate bond deals in euros are now a rarity as issuers and investors struggle to judge the new price of credit.

Photo: SSE plc

On Monday, UK power company SSE launched a €500 million seven-year green bond paying a coupon of 2.875% that attracted investor orders of €5.75 billion, according to bankers close to the deal, and allowed the transaction to be increased to €650 million.

It is a strong reception at a time when issuers and investors are struggling to come to terms with the repricing of credit at higher levels, which has undermined the value of portfolio holdings but may now at least allow better entry points to put on new positions.

Corporate bond new issues have become as rare as earnings upgrades.

“If you are a single-A rated corporate issuer, you’ve seen the underlying rate move up 150 basis points this year, your credit spread widen maybe 50bp and you have to pay big new issue concessions now of perhaps another 50bp,” says one banker. “Yes, funding costs are coming off extraordinarily low levels, but 200bp is a sharp rise.”

And execution risk is much higher. “We have seen more deals withdrawn in the past three months than in the previous three years,” the banker says.

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