LONDON, Sept 13 (IFR) - National Grid Gas Finance is poised
to sell the biggest ever corporate sterling bond on Tuesday, a
trade that could not have been better timed with the Bank of
England announcing the previous day that four of the issuer's
bonds were eligible for its purchase programme.
The UK-headquartered company met investors in Europe and the
UK last week, and on Tuesday started marketing a bumper
five-tranche deal ranging across the curve from five to
The deal is expected to total more than £2.5bn - eclipsing
Enel's £2.25bn dual-tranche outing from late 2009 as the largest
sterling issue in the corporate sector.
"The deal is expected to be well received, as many will not
want to be underweight. We'll be placing a sizeable order," one
The order book was over £6bn at the last update.
The BoE will buy £10bn of corporate paper, initially through
thrice-weekly auctions starting September 27.
The programme, which encompasses debt from companies that
make a material contribution to UK economic activity, will last
for 18 months.
Utilities had been expected to be among the biggest winners,
and indeed electricity and gas companies make up over a third of
the eligible list by value.
Spreads in the sector have rallied hard in the wake of the
BoE announcing the purchase programme on August 4. A National
Grid Gas March 2020 bond, for example, has tightened around 50bp
to Gilts plus 4bp, according to Thomson Reuters data.
The five-year tranche is being marketed at Gilts 90bp-95bp,
having first been shown at IPTs of plus 100bp-105bp. Guidance on
the 12-year is Gilts plus 105bp-110bp, while the 22-year is at
110bp-115bp and the 30-year at a final 120bp over.
Marketing for those began at Gilts plus 115bp area, plus
120bp-125bp and plus 125bp-130bp respectively.
The company had also planned to sell a £100m-plus 25-year
linker at plus 145bp-150bp, but dropped that and instead chose
to upsize the nominal tranches.
The transaction comes at a time of change for the company.
National Grid plc announced in November 2015 that it was
intending to sell a majority of its shares in its gas
Ofgem received notification in June this year that National
Grid plc was asking permission to transfer its gas distribution
assets to a new subsidiary called National Grid Gas Distribution
Limited. Ofgem has yet to set out what the next steps of the
sale will entail.
Investors said the company was offering a slight concession
at initial price thoughts due to the sale, which in turn changes
the credit metrics and future credit ratings of the deal.
National Grid Gas Finance is rated A3/A-/A, although all the
ratings are on review for downgrade or on negative watch.
"They are trying to clean up their structure before the
sale, but the problem for investors here is that the rating will
change on the sale and fall below a single A due to the
increased leverage and uncertainty," the investor said.
"With that in mind, the pricing is hardly anything to get
After the sale, National Grid Gas Finance plc will be
guaranteed by the new entity instead of National Grid Gas plc.
Last week, National Grid launched a consent solicitation on
10 of its sterling bonds, which will expire on Thursday.
The new issues are expected to price later today via lead
banks Barclays, BNP Paribas, Bank of America Merrill Lynch, HSBC
and Morgan Stanley.
A euro deal from National Grid Gas plc is expected to follow
(Reporting By Laura Benitez, editing by Helene Durand, Julian