Shipping company Federal Express raised some US$3.25bn equivalent across two euro and two US-dollar denominated tranches on Tuesday, including its debut sustainable bond.
The bulk of the offering was done in US dollars where FedEx raised US$1.75bn in a two-part deal containing 10 and 20-year bonds. However, much of the investor attention gravitated to the euro portion of the trade, where FedEx opted to introduce its first sustainability bond.
The US company, rated Baa2/BBB, priced a €600m eight-year sustainable bond down at 55bp over swaps, flat to fair value, and well inside the 80bp–85bp IPTs.
The sustainability tranche performed better at pricing as European accounts appeared more price-sensitive around the €650m 12-year conventional tranche, which priced with a final concession of 4bp–7bp. That bond priced at 77bp from 105bp area.
There were no book updates for the SEC-registered deal via ING and Mizuho but both tranches were bigger than the €500m initially signaled.
“For me, they started the 12-year a little cheap, at around a 35bp–40bp concession at IPTs,” said a syndicate banker.
That suggested fair value in the region of 65bp–70bp. Leads placed fair value at 73bp.
Despite syndicate officials reporting that demand for longer-dated transactions is returning, they are still acknowledging that some additional spread will be required.
“The long end is a bit tougher these days,” said a second syndicate banker.
That was not the case in the US, where FedEx took duration at attractive prices with its first 20-year bond since 2015, according to IFR data.
The US$750m 20-year tightened by 22.5bp through price progression to launch at 112.5bp over Treasuries, which is some 20bp tight to where FedEx's most recent 30-year is trading in the secondary market, according to MarketAxess data. Likewise, the US$1bn 10-year launched at Treasuries plus 87.5bp in from 110bp at IPTs and roughly flat to where its outstanding 4.25% May 2030s trade.
Proceeds from the US-dollar debt raise and the non-sustainable euro tranche will go toward the redemption of outstanding notes including its US$500m 3.4% 2022s, €640m 0.7% 2022s, US$500m 2.625% 2022s, €750m 1% 2023s, US$250m 2.7% 2023s, US$750m 4% 2024s, US$700m 3.2% 2025s, US$1bn 3.8% 2025s and the US$450m 3.3% 2027s.
ESG sophistication
With the proceeds from its sustainable bond, the company intends to finance and refinance projects related to low carbon land transportation, such as hydrogen-powered and electrified vehicles, as well as projects aimed at the adoption of sustainable aviation fuels.
The decision to bring its first sustainability bond in euros rather than in dollars was as much driven by the European investor focus on ESG as the company’s asset base.
“They have euro [benchmarks] out there and they have a material interest in Europe since the TNT acquisition,” said a third syndicate banker marketing. FedEx bought Dutch company TNT Express in 2016.
“But I think the really important thing is the sophistication of European investors when it comes to ESG and understanding the ESG factors and developments around a company. This is growing in the US but it is not as advanced.”
Further underscoring the fact that borrowers are having to offer less in the way of premium for short or mid-dated bonds, German construction company Hochtief (BBB– from S&P) tapped the market for €500m on Tuesday with a no-grow eight-year note, which it was able to land flat to or even through fair value.
The deal began marketing at 110bp–115bp but pricing was whittled down to 82bp. One banker suggested fair value around 85bp, another put it in the low 80s. Books peaked at more than €1.7bn, before falling back down to over €1.05bn.
BNP Paribas, Credit Agricole, Deutsche Bank, HSBC and Mizuho were the leads.
Truist, Wells Fargo, Goldman Sachs, ING, Mizuho and Morgan Stanley were leads on FedEx's US debt raise.
Updated story: Adds US launch details