- Sideways credit spread movement despite spike in international rates.
- Surge in M&A volume from just a couple of deals.
- Statoil led corporate primary activity with its first non-USD issue since 2009.
Market commentary
This has been an indecisive week for credit indices, with no clear direction in intraday trading, and an end result of unchanged levels compared to the end of last week. Cash bond indices for investment grade corporate bonds were unchanged, while high yield corporate bond indices were tighter on Thursday, as compared to the previous week. Both US and core euro rates have moved sharply upward during the week on upcoming central bank policy tightening, but their correlation with credit-related assets has been very weak.
In the telecom industry, we saw significant M&A activity on Monday and Tuesday. In the largest deal since 2000, American Verizon Communications announced it will buy Vodafone’s 45% stake in their joint venture Verizon Wireless for $130.1 billion, of which $58.9 billion will be paid in cash and the rest in stock. The cash is financed by a bridge loan, of which roughly half could be refinanced as early as next week in the bond market, which would make it the largest one-time bond offering ever. Both S&P and Moody’s downgraded their ratings on Verizon Communications by one notch after the announcement to BBB+ and Baa1, respectively, while Vodafone’s A3 rating was affirmed by Moody’s on Wednesday.
Just a few hours later, Nokia announced Microsoft will buy its Devices and Services business for EUR5.44 billion. On Tuesday Nokia’s CDS tightened some 200bp, and since then it has tightened further to less than 230bp from the origional 535bp before the announcement. In the coming months, Nokia’s management will decide how much of the proceeds from the sale will be distributed to shareholders. On Thursday, Moody’s upgraded its ratings on Nokia subsidiary NSN to B1 from B2, and affirmed its B1 rating on Nokia, but changed the outlook from negative to developing.
Primary market
A more positive tone in the credit markets during the early days of the week opened the door for issuers in the primary market. Statoil brought the week’s largest corporate issue on Tuesday, with EUR1.5 billion in one seven-year and one 12-year tranche, as well as GBP350 million with a 27-year maturity. The Norwegian oil company paid m/s+28bp and m/s+48bp respectively for the EUR-denominated funds and 70bp over similar-maturity Gilts for the GBP tranche. Despite uncertainty before the European Central Bank and Bank of England’s rate decisions, there was plenty of primary issuance on Thursday as well, with focus on financial and SSA issuers.
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