Corporates: GE extends euro corporate FRN frontier
Floating rate notes are typically a short-dated bank product traditionally aimed at other banks’ treasuries. Is this the start of a new trend?
General Electric Capital Corp brought a €1 billion 15-year floating rate note via Lehman Brothers and BSCH last month. This unusual transaction is the first broadly distributed euro senior corporate floating rate note with a long-dated tenor and is consistent with the continued theme of strong demand for FRNs in a rising rate environment, particularly from non-traditional FRN investors.
“I do not think that too many corporates can access the 15-year euro FRN market, which I believe is open mainly to the higher end of the credit spectrum,” says Lorenzo Frontini, head of European syndicate at Lehman Brothers. GE is the only large corporate frequent issuer that still has a triple-A rating. But according to Frontini, there is definitely a possibility of an increase in corporate floaters versus the traditional fixed rate. “We are in an environment with high volatility and expectations for higher interest rates. Therefore more and more investors will shift to floaters as defensive instruments,” he says.
The deal started out sized at €750 million on May 8, offering a coupon of three-month Euribor plus 25 basis points before being tapped the following day for a further €250 million.
The order book consisted of more than 55 accounts, driven by European banks, money managers and insurance companies.