SSA: Sovereign guarantees under fire
Until recently, European public-sector finance did not set the pulses racing. But as the latest sovereign downgrades hit home, some investors are shunning any SSA borrower with ‘Europe’ in its name. The days of boring old triple-A seem to be over.
When Standard & Poor’s reaffirmed the triple-A rating of the European Union’s Luxembourg-based development bank, the European Investment Bank, on January 17, the central bank reserve managers that supported its $3 billion five-year benchmark bond just one day earlier breathed a sigh of relief. Not before, however, they had extracted a new-issue premium of 70 basis points over mid-swaps, close to historical highs for a borrower that had paid swaps plus 15bp the same time last year. "For years the biggest question in public sector capital markets was would these borrowers come at 20bp, 25bp or 30bp below Libor," says Charlie Berman, head of public sector, Europe Middle East and Africa, at Barclays Capital in London. "If you had said three years ago that at times some reference names would have to yield 60bp to 70bp over and there would be a similar spread differential amongst the triple-As people would have thought you were mad. The days of nothing to talk about on the credit front are long gone. We are definitely in a new era."