A blank issuance day in the euro high-grade corporate primary market has left volumes for October so far this year stalled at just €2.55bn, though one Triple B rated borrower is preparing to tap the market as early as tomorrow.
Tuesday marked two straight days of no supply, with only one corporate, Indigo Group, in the publicly announced pipeline. The French car park operator plans to print a 6.5-year bond with an expected €500m size, alongside a tender offer on the company's 2.125% April 2025s, of which €528.5m is outstanding.
While the pace of issuance had already been slowing down due to the earnings blackout period, borrowers have also had to navigate severe interest rate volatility in recent weeks. Still, with higher new issue premiums of roughly 30bp on offer, the investment-grade corporate market managed to stay open last week even for tricky names and products such as real estate sector bonds and hybrid offerings.
"The credit market is behaving very well and for a simple reason – a lot of investors, especially the ones that have a buy-and-hold strategy, are attracted by the yields. If you're investing in a short-term bond issued by an investment-grade borrower, you don't really care if the company is in a cyclical sector or not as the bond will get redeemed given the credit rating," said Eric Vanraes, a portfolio manager of the strategic bond opportunities fund at Eric Sturdza Investments.
Bankers also say there is liquidity available, but noted that investors remain selective. "The market is not entering a window for opportunistic issuers and companies have to be pragmatic about pricing," said a syndicate banker.
A second banker, who is on the Indigo transaction, said he has about four to five borrowers looking to print in the next two weeks. "We are still confident that if there is no specific contagion [from the rates volatility], the primary market will stay open," he said.
Indigo has hired Credit Agricole and JP Morgan as global coordinators for the proposed trade. BNP Paribas, HSBC, NatWest Markets and Santander are active bookrunners. The French issuer will complete a two-day investor roadshow on Tuesday.
S&P upgraded Indigo's credit rating to BBB from BBB– in May, citing its expectation that the company will maintain a resilient operating performance in 2023–2024. The rating agency also forecasts that Indigo will generate stronger-than-anticipated cashflow over 2023–2025, which will mitigate the higher debt stemming from its purchase of pure off-street Spanish car park group Parkia Spanish Holding SLU and its subsidiaries.
Recent credit spread widening coupled with fund outflows, however, have stoked concerns over how long the resilient tone can be maintained. The average asset swap spread for euro non-financial senior debt rose by around 5bp last week and was spotted even wider on Monday at 91.5bp, according to iBoxx.
"I am growing more and more cautious and have sold all my hybrid positions as higher-beta bonds don’t make sense," said Vanraes. "We are seeing signs of a potential black swan event, with huge short positions at the long end. If there is some kind of volatility, as seen in the SVB crisis, or any accident, there will be huge sell-offs at the long end, prompting margin calls and a short squeeze."