Better subscription comes at a price in IG market

4 min read
EMEA
Jihye Hwang

WPP and Mercedes-Benz had to offer investors attractive concessions to get them into their transactions on Monday, showing that pricing power is still in buyers' hands, though that appeared to be enough to attract a healthy level of demand.

The trades emerged on a relatively quiet day for supply, with €2.75bn priced versus the €7.15bn raised by seven issuers on the same day last week. Still, with bankers expecting another week of heavy supply, with €15bn anticipated, investors will be spoilt for choice.

A DCM head said a deal's success was closely linked to its timing. "The same name in a crowded market versus a day with lighter volumes may have a different reception, so deals have to be very mindful of the calendar as investors have the luxury of choice and can stick to their guns," the banker said.

WPP achieved eye-catching demand that reached €4bn with a €750m five-year bond, while Mercedes-Benz printed a €2bn green two-tranche offering that was covered more than two times.

"Completing marketing last Tuesday, we could have gone on Wednesday but held back because it was incredibly busy in IG corp. We took that time and waited for the market to open after the European holiday, which paid off," said a lead on WPP's transaction.

WPP's books grew from €3bn when guidance was set at mid-swaps plus 120bp area, inside initial price thoughts of 140bp area.

Leads Barclays, Citigroup, Goldman Sachs, JP Morgan and Wells Fargo were able to keep investors focused on the trade by circulating book updates.

"The updates were showing that these trades are working well as investors are a bit nervous about how much liquidity is out there and don't want to be in barely covered deals," the lead said.

The solid demand, however, did little to squeeze the elevated new issue concessions levels seen in recent transactions. WPP paid up by roughly 20bp after landing at 110bp. Leads saw fair value at around 90bp, while one banker away put it at 85bp.

"We've received investor push-back saying that [WPP's] current spread levels look too tight, which was reflected in the fairly defensive IPT levels," the lead said.

The British advertising company last tapped the euro market in May 2020. WPP Finance is the issuer and WPP together with WPP 2005 and WPP Jubilee are the guarantors. The bonds are rated Baa2/BBB, Moody's/S&P.

Juicy spreads

Mercedes-Benz (A2/A, Moody's/S&P) was also offering attractive spread levels with its evenly split three and eight-year green bonds that launched at 20bp and 65bp, respectively. It priced wider than country peer BMW (A2/A). The latter priced a €750m November 2026s at plus 18bp, €500m July 2030s at plus 43bp and €750m May 2035s at plus 65bp in mid-May, though it lost demand during the bookbuilding process.

"In the auto sector, there are bigger investor accounts that are hoping for wider levels," said a lead on the Mercedes' trade prior to launch. "Of course, the issuer has its eyes on BMW's curve and would like to price in the same type of universe, but they understand that it's not a gung ho market ... and that new issue premiums are elevated."

IPTs were 50bp area for the May 2026s and 90bp–95bp for the May 2031s via BayernLB, Commerzbank, LBBW, SEB, Societe Generale and UniCredit. The lead and some bankers away from the deal saw the respective fair value levels at 15bp–20bp and 50bp–55bp, though CreditSights analysts spotted them at 5bp and 45bp–50bp.

Comparables included the company's green bonds due September 2030 and March 2033 that were bid at 39bp and 59bp.

Final books for the three and eight-year bonds came in at €1.9bn-plus and €2.3bn-plus, respectively, after peaking at over €2.3bn and €2.5bn.

Mercedes-Benz International Finance is the issuer and Mercedes-Benz Group is the guarantor.