New issues: France Telecom: too many banks spoil the deal
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New issues: France Telecom: too many banks spoil the deal

Cash corporate credit might be in short supply but borrowers still need to tread carefully.

France Telecom suffered from a disappointing new-issue expedition in October, paying more spread and obtaining less cash than it wanted. Six banks were announced as mandated for a two-tranche deal with an expected size of €2 billion to €2.5 billion. The prospects were excellent since investors are crying out for bonds – year-to-date corporate supply amounts to a paltry €72.1 billion, down 17%

on the first nine months of 2004. Things are not getting better, HSBC forecasts total issuance from the corporate sector this year to amount to €85 billion to €90 billion, well below last year’s €106 billion.

In these circumstances the borrower should have had no problems obtaining the €3 billion it really wanted but ended up walking away with just €2 billion in two tranches split equally between a five-year and a 10-year bond. Worse still was the fact that price talk started at three-month Euribor plus 25 basis points for the five year and plus 45bp to 47bp on the 10 year but the leads were forced to widen the deal and ended up printing at plus 27bp and 49bp.

The final ignominy came when the bonds widened on the break of syndicate.

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