UPDATE 2-Trio revive peripheral bond push as markets stabilise
(Rewrites throughout, adds Mediobanca and BBVA bond deals)
By Natalie Harrison and Aimee Donnellan
LONDON, Oct 5 (IFR) - Spain's Telefonica and Italy's Mediobanca , encouraged by a sell-out deal from Spanish bank BBVA in the dollar market overnight, took advantage of more stable market conditions to bring new euro bonds on Friday.
In a startling change of fortune, BBVA was swamped with USD7.5bn of demand for a USD2bn three-year Yankee bond, and Telefonica looked set to emulate that success with an EUR8bn book for a EUR1.2bn long seven-year deal on Friday.
At EUR1.2bn, the Telefonica bond, expected to price later today, will be one of the biggest single tranches from a peripheral corporate issuer this year.
Only Italian utility Snam has surpassed that size after it issued a EUR1.5bn six-year bond in September, as part of a EUR2.5bn dual-tranche trade, according to IFR data.
BBVA's deal marked the first time US investors have shown interest in buying Spanish financial risk in more than 17 months, and has fuelled expectations that Santander and some of the best Italian banks will follow suit.
The demand for BBVA's deal is even more remarkable given that a EUR1bn two-year issue priced last week for the borrower was barely subscribed .
A combination of more stable spreads in the sovereign sector and a sharp decline in issuance after a stellar month for volumes in September has also helped to improve capital market access for peripheral borrowers, bankers said.
"Two weeks ago, there was an awful lot of supply that had to be absorbed which made the market a little softer," said a FIG syndicate banker.
"This week we've seen limited issuance in general, so investors are hungry for paper."
Peripherals accounted for around EUR12bn, or 30%, of the EUR37bn non-financial investment-grade supply in September, according to Societe Generale.
"Pretty much every debt capital markets worthy corporate issuer did a deal in September, so I wouldn't expect a ton of supply from here," said one corporate syndicate official.
"Whether or not there is clarity on the Spanish bailout, the market is confident about the ECB backstop and that Spain is not going to run out of money," he added.
TELEFONICA BACK AGAIN
Telefonica, rated Baa2/BBB/BBB+, opened books on its second bond deal in a month, following a EUR750m bond which priced in September as a wave of corporate issuers ended the gridlock for peripheral issuers.
One banker on the new deal said that the Telefonica mandate was awarded overnight.
That suggested that the issuer had taken confidence from the success of the BBVA deal, coupled with the fact that its own most recent bond from last month attracted a book of around EUR7bn and has screamed 180bp tighter in the secondary market.
Telefonica's latest deal marks the first benchmark bond from an investment-grade peripheral corporate issuer since September 21 when Spanish energy company Enagas, rated A-/A-, priced a EUR500m five-year deal.
That issue followed bonds from other peripheral corporates including Enel, Repsol, Telecom Italia and Portugal's EDP, which has fallen into high-yield indices following its sovereign's downgrade to junk status.
Telefonica mandated BayernLB, BNP Paribas, Citi, Commerzbank, MUSI and SG CIB for the new January 2020 euro benchmark and set initial price thoughts at mid-swaps plus 340-350bp.
The leads later tightened that guidance to mid-swaps plus 330-340bp, and closed books at 0850GMT. The deal size was later set at EUR1.2bn at a final spread of plus 330bp.
One banker involved in the deal estimated fair value on the new bond at 320bp, indicating a new issue premium of around 10bp based on the final spread - significantly below the 25bp concession offered by Telefonica on last month's deal.
MEDIOBANCA SEIZES ON SQUEEZE
Mediobanca, meanwhile, a rare issuer in the bond market having been absent from the market since April 2011, opened books on a three-year euro benchmark senior unsecured bond.
Lead managers Banca IMI, Mediobanca, Societe Generale and UniCredit set guidance in the range of 330bp-335bp over mid-swaps, and later fixed the reoffer level at plus 320bp.
Demand surpassed all expectations as books swelled to around EUR2.8bn for the EUR500m deal size.
The timing of the deal also capitalised on a squeeze in the financial cash market on Friday that has driven Spanish and Italian bank spreads in by around 25bp.
"This was a very brave move," said a banker. "The market is very supportive but we do realise that we took a risk by announcing the deal in between the ECB meeting and nonfarm payroll figures."
Another banker said that they had been carefully monitoring the market for the past few days and deemed the ECB meeting on Thursday to be a credit positive, and one that would positively influence the market.
(Reporting by Natalie Harrison and Aimee Donnellan, Editing by Helene Durand and Julian Baker)