* Market adapts to ECB effect
* Coca-Cola and Pfizer to trigger more supply
* Investors guard against political risk
By Laura Benitez
LONDON, March 3 (IFR) - Coca-Cola and Pfizer broke new
ground in the European corporate market this week, pricing the
first above par floating-rate notes as the sector adapts to the
deeply negative rates sparked by eurozone monetary policy.
Coca-Cola priced its FRN on Monday with Pfizer following on
Wednesday, in what could trigger a new market trend, bankers
"This is the first time we've seen an above par pricing on a
public corporate deal, and it's been done by Coca-Cola and
Pfizer in a very visible way. It's a game-changer and it could
unlock a reasonable amount of floating-rate supply with above
par pricing features," said Marco Baldini, head of European bond
syndicate at Barclays.
Pfizer's €1.25bn two-year floater priced at a cash price of
100.35 with a three-month Euribor plus 20bp coupon floored at a
0%, which rules out investors having to make payments to the
Similarly, Coca-Cola printed a €1.5bn two-year at a cash
price of 100.30, with a floored 0% coupon, at three-month
Euribor plus 25bp.
In October last year, Danone left over €4m on the table when
it priced a €1.35bn two-year floater at a margin significantly
higher than the market rate required.
The French yoghurt maker printed the FRN with a coupon of
three-month Euribor plus 15bp, but at a 100 cash price. Given a
deeply negative three-month rate, the bond jumped 30 ticks when
freed to trade.
The securitisation and SSA sectors have long adapted to the
complexities created by negative rates, pricing bonds at a
premium to par to prevent borrowers losing out.
"[The corporate market] has been completely untested," a
lead on the Coca-Cola deal said.
"Feedback from lots of accounts has previously been negative
when faced with above par pricing. But sentiment has completely
changed recently, driven partly by the complete lack of regular
supply and investors focusing on the shorter end."
ON THE DEFENSIVE
Despite Coca-Cola and Pfizer's 0% floored coupons offering
little if any return at all, demand for the paper sky-rocketed,
demonstrating how investors are shielding their portfolios ahead
of looming political risk.
Investors threw €3.75bn of orders at Pfizer's €1.25bn
floater, while Coca-Cola's €1.5bn drew a whopping €4bn of
"Investors are seeing floaters as super-defensive
instruments to put money in, considering the political
uncertainly in Europe right now. We're seeing a number of
accounts voicing their concerns around this risk, and floaters
are attractive investments," Baldini said.
Mounting concerns over political risk, namely the French
presidential election, and poor valuations have began to weigh
on investors' minds, forcing many to 'park cash' in safer assets
until the market finds some clarity.
Cross-border borrowers have flooded the European market in
recent years, attracted not just by the low coupons but also the
diversification and off-the-run tenors it can offer.
Pfizer, rated, A1/AA, returned to the market this week after
an eight-year absence to raise €4bn across two, three, five and
The deal's proceeds will be used partly to repay the
approximately US$6.6bn of commercial paper the borrower has
Coca-Cola, rated Aa3/AA- (stable/negative) printed a €2.5bn
three-tranche transaction across two, four and seven-year
tenors, largely to refinance a €2bn bond maturing in March this
(Reporting By Laura Benitez, editing by Alex Chambers and