Feb 8 (IFR) - IBM and AT&T made the most of a surge in
demand for floating-rate notes in the US corporate bond market
this week by issuing US$2.25bn of two-year and three-year
floaters, and in IBM's case at a negative spread to Libor.
IBM issued US$1bn of two-year notes at three-month Libor
minus 2basis points, making it one of the very few corporates to
have issued a floater inside of Libor since the credit crisis.
AT&T, meanwhile, issued US$1.25bn of three-year
floaters at 38.5bp over three-month Libor, at the tightest end
of guidance, after attracting US$2bn of orders.
The aggressive pricing on both was possible because of a
scramble for floating-rate debt securities in the corporate bond
market in recent weeks as Treasury yields rise.
So far this year, more than US$16bn of FRNs have been
priced, already more than a third of the US$42bn of floaters
issued in all of 2012.
Floating-rate tranches from the likes of AT&T and IBM
are rarities, with both having abstained from public
floater issuance since 2007.
Although just 10.95% of overall year to-date issuance, the
amount of floating-rate deals is expected to ramp up
considerably if US economic data continue to be on the positive
RESURGENCE OF DEMAND
"We have seen a resurgence of demand for floating-rate
product in 2013," said Anne Daley, managing director and senior
syndicate banker at Barclays in New York. "While supply has not
been massive yet, the fact that we have already seen more than
US$14bn year to-date versus US$42bn for all of last year clearly
shows there is very strong demand growing for the product."
The last big surge of floating-rate demand was in January
2011, when the market was convinced that the only way for rates
to go was up. Then issuance accounted for 23.58% of total deal
volume and stayed above 20% of the total through to April of
Corporates are keen to add more floating-rate debt to their
funding mix, which has become overweighted with fixed-rate notes
in the past few years as they jumped to lock in all-time low
Their need to balance out their funding mix has been much
welcomed by investors.
"Demand for floaters has increased because the risk
tolerance of traditional front-end buyers has grown in the last
12 months, coupled with a greater number of traditional
long-dated investors viewing floaters as a hedge against a rise
in interest rates at some point," said Dan Mead, a managing
director on Bank of America Merrill Lynch's investment-grade
corporate bond syndicate desk.
Usually, money managers and securities lenders tend to buy
floaters inside of 18 months, but the strength of demand has
enabled names such as IBM and General Mills to issue out to two
and three-year deals, respectively, and JP Morgan was able to
raise US$2.4bn of five-year floaters in January.
IBM is only the third industrial issuer since the crisis to
print at a negative spread to Libor, along with Procter & Gamble
and Coca-Cola Company, which did deals last year.
The IBM deal, led by Barclays, HSBC, Mizuho and RBC, was
part of a US$2bn two-part trade that also included a US$1bn
five-year fixed-rate portion. The floating-rate tranche
attracted US$1.25bn of unpadded orders.
The AT&T floater, led by BNP Paribas, Credit Suisse and UBS,
was part of a US$2.25bn trade that also included a US$1bn 0.90%
three-year fixed-rate portion priced at 55bp over Treasuries.
(This article will be published in the Feb 9 issue of
International Financing Review, a Thomson Reuters publication;
for more, see www.ifre.com)
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