* Hybrids coming back into favour
* Investors desperate for yield
* More names adding to pipeline
By Laura Benitez
LONDON, Sept 29 (IFR) - After spending much of 2016 in the
doldrums, corporate hybrid issuance is staging a revival on the
back of investors' search for yield, with Total announcing on
Thursday that it was aiming to raise up to 2.5bn in the format.
The oil and gas major's capped 1bn perpetual NC6.6 and
expected 1.25bn-1.5bn NC10 deals have attracted over 7.5bn of
demand. EnBW lured around 2bn of interest for a 725m 60.5NC5.5
issue on Wednesday.
"It seems the hunt for yield has resumed with a vengeance,"
said Alex Temple, portfolio manager at ECM, part of Wells Fargo
Asset Management, which manages US$480bn.
Hybrids bore the brunt of market volatility this year,
compounding concerns around an asset class that had been badly
knocked after S&P changed its equity criteria in late 2015.
Year-to-date issuance is a mere 4.2bn versus more than
28bn in 2015. However, this week's spurt will almost double
Total jumped into the market just hours after OPEC agreed a
preliminary deal to reduce oil production for the first time in
eight years, sending crude prices surging.
"Total is a good name but the timing is a bit of a concern,"
another investor said.
"Some might see the OPEC announcement as supportive, but
others might think OPEC are setting everyone up for
disappointment given lack of clarity over how they will achieve
Total started marketing the NC6.6 tranche at 305bp area over
mid-swaps, which was then tightened to 285bp area.
Guidance on the NC10 is 325bp area over swaps, tighter than
the 340bp area IPTs.
The bonds are expected to be rated A2/A-. The deal is
Total's second in the format this year following a 1.75bn
non-call six trade sold in May.
The sector's revival comes as appetite for risk has grown in
recent months, helped by European Central Bank purchases that
have pushed more corporate bonds into negative-yielding
Furthermore the yield differential between senior and
subordinated debt - a key metric used by companies in
considering whether to issue hybrids - has narrowed to the
240-260bp range from around 500bp at the start of the year.
More companies are rumoured to have mandated deals,
according to several sources, indicating that volumes could soon
Hybrids receive equity credit at rating agencies and have
been labelled as the go-to product for bolstering balance sheets
and funding M&A while defending credit scores.
Those anticipated to issue paper include Bayer, which two
weeks ago said it expects to sell a mix of senior and hybrid
debt to help finance its US$66bn takeover of US seed company
Lanxess is another near-term candidate, having announced
plans to sell up to 750m to finance the acquisition of Chemtura
"Total is proving how much of an attractive space the hybrid
market is for companies wanting to reduce their overall weighted
average cost of capital," said Julian Marks, portfolio manager
for Neuberger Berman's Corporate Hybrid Fund.
Total's deal will price later today via Deutsche Bank, HSBC
(B&D), JP Morgan and Morgan Stanley.
(Reporting By Laura Benitez, editing by Helene Durand, Julian