* Attractive pricing driving US debuts in euros
* Typical USD/EUR differential inverted for Rexel
* European macro shocks could close window
By Robert Smith
LONDON, March 22 (IFR) - Europe's high-yield market has
found a new friend in the form of top quality US issuers that
have jumped on a rare chance to switch away from dollars and
still benefit from competitive low-cost funding on offer from
its younger, and much smaller, rival.
Packaging firm Owens Illinois, a known name in the euro
market, as well as US peers Belden Inc and Avis have all priced
euro-denominated deals in the last month. The latter two were
debut issues in the single currency, and all three came at
relatively low concessions to their dollar debt.
"The traffic has usually run the other way, with European
issuers raising cheaper dollar funding," one high-yield
syndicate banker said.
"As the price differential between the two markets has
narrowed, the trend over the next couple of months will be US
issuers coming to the euro market."
US issuers with European revenue streams usually raise
funding in dollars and then swap it into euros. As the premium
for raising euros organically has lessened or disappeared
entirely, CFOs and corporate treasurers looking to diversify
have taken note.
US companies without the name recognition of Belden or Avis
that desire euro funding would probably still be better swapping
out of dollars, however, as they would struggle to drum up
The trio of deals we have seen, though, set a strong
Avis was the first to take advantage of this narrowing
funding gap. The car rental company priced a EUR250m eight-year
non-call three senior note in late February, which backed the
dollar acquisition of Zipcar.
Avis Europe previously had a EUR250m FRN, but this was
redeemed when Avis Budget bought out Avis Europe in 2011,
leaving Avis with a big European presence but no euro debt.
"Avis wanted euros back in its capital structure, but when
they could fund in dollars at 4 to 4.5% even if they managed 6%
in euros, why would they bother? There's no rationale if you're
getting 150bp better in your domestic market," the banker said.
Avis still paid a small premium for issuing in euros, but at
just 25bp-50bp, this was considered negligible.
Belden was equally successful. It priced an upsized EUR330m
10 non-call five senior subordinated issue with a coupon of
5.5%, which was a 50bp premium for both a new issue and for
raising in euros - an impressive feat.
Belden's used the issue to refinance bank debt, but raised
in euros as it generates 20% of its revenues in Europe.
Owens-Illinois, meanwhile, priced a EURR330m eight-year, non
callable, senior issue at a 4.875% coupon this week, refinancing
a more expensive 6.875% bond issued in 2010.
Owens-Illinois is a slightly different case, in that it
already has outstanding euros and the bond was issued out of a
European subsidiary with a guarantee from the US parent company.
US issuers often benefit from tax advantages this way.
French issuer Rexel took this trend a stage further this
week, pricing a euro tranche inside the dollar piece.
The last time this was achieved in the high-yield market was
in January 2011 by healthcare company Fresenius Medical Care,
according to one banker on the deal.
Rexel priced the euro tranche 12.5bp tighter, at a 5.125%
yield compared to 5.25% on the dollar tranche.
Rexel is in many ways a special case. A widely known and
well loved credit to begin with, it is one of only a handful of
names that have a stronger following in euros than in dollars.
Time will tell if other issuers can repeat the trick.
The window may be brief for US issuers, however, if the
eurozone sovereign crisis takes a turn for the worse.
Owens Illinois got a taste of this potential volatility,
postponing its deal by a day following the shock deposit tax
announcement from Cyprus.
"You never really know what humps there are on the road in
Europe, and Cyprus provided a timely reminder of this. It warns
issuers that there is a window to do these trades, and they need
to hit it while they can," said one of the bankers.