CORRECTED-UPDATE 1- Tide turns for EFSF as investors back bonds
By Natalie Harrison
LONDON, March 21 (IFR) - The European Financial Stability Facility, Europe's sovereign rescue fund, is back in investors' good books after notching up EUR17.6bn in demand this week for two syndicated bond deals hailed as a key test of buyers' appetite.
The issuer's five-year bond issue, capped at EUR4bn, is due to price later on Wednesday at tightened guidance of mid-swaps plus 38bp. The deal follows a 20-year transaction on Monday, which was also capped at a smaller EUR1.5bn, which attracted EUR4.8bn of investor orders.
Both bonds were about three times subscribed -- with the five-year attracting EUR12.8bn of demand -- signalling a turnaround for the issuer even though the headline number was well below the exceptional EUR44.5bn order book for the issuer's first benchmark bond, a EUR5bn five-year priced in January 2011.
The EFSF has been dogged by uncertainties about its status and whether it will have to fund any further eurozone sovereign casualties in the future.
"This is a very impressive book size. The issuer could have even printed a significantly bigger size, but they are capped at EUR4bn," said Clemens Popp, global head of financial and public sector origination at UniCredit.
"It shows just how the mood has changed towards European issuers like the EFSF since the end of last year. It also shows that there has been a spillover effect into the five-year sector from the ECB's LTRO."
The EFSF's three-year EUR3bn deal issued in January attracted EUR4.5bn in demand in difficult market conditions as Italian 10-year yields jumped back above 7% and Spanish yields widened by 20bp to 5.6%. Italian yields are now sub-5%, while Spain is trading around 5.24%, according to Tradeweb.
Prior to that in November, its 10-year EUR3bn bond limped over the line with books barely covered despite paying a much wider spread than previous issues.
"Overall the shift in risk mood has been extremely positive following the Greek PSI. There is no more talk about it, and the auction of Hellenic CDS did not trigger any negativity in the market," said Popp.
"Clearly there are some big uncertainties surrounding EFSF. The classic question is about the ESM replacing the EFSF. But the EFSF has been constantly touring to explain their credit story, and this deal shows that they are doing their job very well because after a troubled period last year, investors are buying into the story."
The final order book for the five-year bond consisted of 217 accounts, with the spread tightened from initial plus 40bp area via lead managers Citigroup, Nomura and UniCredit. The deal will price later on Wednesday.
The final terms indicate zero new issue concession to the EFSF's existing 2016 bond, which is bid at around 36bp over mid-swaps, Popp said.
Bank treasury investors are expected to account for about 45% of the final order book once allocations are completed.
Proceeds from the bond have already been "earmarked" for Greece and Ireland. The EFSF has not pre-funded any future disbursements for Greece, Ireland or Portugal.
In addition to the syndicated bond issues, the EFSF also raised EUR2bn this week in a six-month bill auction.
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