Europe's corporate markets got a jolt on Monday after the two issuers which were in the primary were unable to move pricing and forced to pay significant new issue premiums.
Both Acciona Energia Financiacion Filiales (BBB–/BBB, Fitch/DBRS) and Toyota Motor Credit Corporation (A1/A+/A+), the former in euros, the latter in sterling, landed at least around 30bp back of fair value after failing to generate big books.
Credit markets have, to an extent, lacked conviction in recent weeks thanks to rates volatility, while the Israel-Hamas conflict has only served to exacerbate matters. Still, most recent deals have gone relatively smoothly as long as the marketing and pricing strategy have been appropriate. Moreover, Monday's open was relatively stable.
Acciona Energia limped over the finish line with its €500m green April 2031s, with not even the ESG label helping. It suffered the same fate as German truckmaker Traton in May, in failing to get books to fully cover the deal, with final demand at above €475m. TMCC's £300m five-year bond fared better, though was less than twice covered. The financing subsidiary received final orders of more than £420m.
"The deals didn't attract sufficient momentum and it's disappointing to see where the pricing landed. But it was a stable session that justified going ahead," said a syndicate head.
He said investors are "holding onto cash a bit more given the geopolitical conflict" and that issuers are having to compromise on pricing. "Maybe in a [few] weeks' time, the borrowers [will] be happy that they were able to deliver the funding."
As more frequent issuers, Acciona and TMCC skipped official roadshows, though some extra caution could have been helpful.
"At the height of a bull market, there would be seven or eight out of the top 10 investor accounts participating in a deal, whereas now, for the same deal and same appropriate pricing levels, only about five to six investors would be in it. The reason is that we now have less consensus about the future," said a second syndicate head.
A third syndicate head highlighted how Acciona's spread levels could have looked tight for some investors, citing financial deals that went smooth sailing on the same day. AIB Group, for example, raised €750m from an eight-year non-call seven green bond that landed at mid-swaps plus 200bp, inside initial price thoughts of 225bp area.
"AIB was a blowout transaction, but the spread context is different [from Acciona's deal]," the third banker said.
The Spanish renewable energy company printed the 7.5-year bond at 185bp via joint bookrunners BBVA, Bestinver, BNP Paribas, CaixaBank, Commerzbank, HSBC, Natixis, Rabobank, Santander, SMBC, Societe Generale and UniCredit. Corporacion Acciona Energias Renovables was the guarantor.
Investors are also generally cautious about adding risk to their portfolios because of the time of the year, said a capital markets head. "Nobody wants to be a hero now," he said.
TMCC set the spread on its deal at 135bp over Gilts, via Barclays, HSBC and Lloyds. Toyota Motor Corporation and Toyota Financial Services Corporation were credit support providers.
While earnings blackouts mean that supply is likely to be limited, another issuer announced its intention to fund soon, with fashion company H&M announcing a rare trade. It is planning a potential debut green bond deal with an eight-year tenor and an expected size of €500m. That deal, however, will come after a two-day investor call wraps up on Tuesday.