May 16, 2017 / 4:46 PM / 3 months ago

REFILE-Market reaches top as orders for Rallye skyrocket

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By Laura Benitez

LONDON, May 16 (IFR) - Orders peaked at over €3bn for French holding company Rallye's unrated €350m five-year bond, which is set to price at a 4.375% yield, a telling sign that the investment-grade corporate market is super hot, investors said.

It will be the first bond from Casino's controlling shareholder since a report in December 2015 from short-seller Muddy Waters labelled the French retailer's financial statements as 'literally meaningless'.

After holding investor calls on Monday, Rallye officially began marketing an expected €300m long five-year deal at initial price thoughts of low 5% yield.

Guidance was set at 4.75% area, and was later revised to 4.375%/4.5% for an upsized deal. In the end final terms came at 4.375%, as orders were reconciled at €2.6bn from over €3bn.

The borrower drew a heavily subscribed order book despite many investors telling IFR they were steering clear, calling the new bond 'ring-the-bell top of the market stuff'.

However, a lead banker said the "outstanding success of (the) issue has discredited" those investors.

The yield is attractive in the low-yield environment and comparable to where single B credits have issued paper recently. Norican, rated B/B2, priced a €340m 2023 senior unsecured deal at 4.5% earlier this month.

"Basically it was oversubscribed as it had been pre-marketed so extensively," said one hedge fund manager who placed an order.

He thought the order book was inflated by leveraged investors trying to maximize their allocation, who will then seek to flip the bonds.

"There are a lot of people flipping the market and getting involved on a leveraged basis without having to put up any capital due to the nature of the market."

Many real money investors are still cautious about buying a credit they view as having an opaque financing structure.

The report from Muddy Waters in December 2015 prompted closer examination from rating agencies of the complex debt structure of France's Casino and its parent Rallye.

Consequently, Casino was junked last year; S&P downgraded the credit to BB+ with a stable outlook in March 2016, and Fitch to BB+ with a stable outlook the following month.

One investor said a yield close to 4% is indicative of how hot the market is.

Another investor said: "I expect they had a large proportion of the book already soft circled at a price of say 5%. It should be interesting when Casino goes into reverse or sells off."

BNP Paribas, HSBC, ING, Natixis, NatWest Markets, Societe Generale and UBS were bookrunners on the transaction. (Reporting By Laura Benitez, editing by Sudip Roy and Alex Chambers)

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