* January volumes expected to hit three-year highs
* Demand pours into new trades
* M&A-led bond flurry expected
By Laura Benitez
LONDON, Jan 4 (IFR) - European companies capitalised on high investor cash reserves and positive new year momentum on Wednesday to fire out bonds while market conditions remain favourable.
Auto firms BMW, RCI and PSA Banque France are among those raising financing this week, where year-to-date volumes are expected to hit three-year highs.
“Investors have high cash balances and are looking for credit opportunities, let’s see how far this Trump-led rally can continue for,” one syndicate banker said.
Issuers are making the most of the strong market backdrop and looking to avoid a repeat of 2016 when the European bond market was disrupted several times as unexpected political turns made investors nervous and caused pricing technicals to swing out of favour.
Bankers and investors expect this year’s political calendar to spark a similar level of uncertainty and disruption, which will see borrowers grab safe market windows while they can.
Brexit negotiations and France’s presidential election are some of the events expected to cause potential market volatility in the coming months.
Today’s deals have so far lured strong investor demand, illustrated by an over 4bn order book for BMW Finance’s dual tranche four and 7.5-year benchmark deal.
Elsewhere, PSA Banque France, rated Baa2 (positive) by Moody‘s, is marketing a 500mn no-grow three-year deal, while auto spare parts manufacturer Valeo, rated Baa2/BBB, will price a 500m six-year and attracted over 3bn of demand.
Germany-based chemicals group BASF is looking to lock in more sterling financing to further capitalise on the Bank of England’s stimulus programme.
BASF, rated A1/A/A (Moody‘s/S&P/Scope), is marketing a long eight-year sterling deal, after selling the BoE’s first eligible bond for its corporate bond buying programme at the close of September last year.
Elsewhere, German healthcare group Fresenius kicked off 2017’s jumbo M&A-linked bond supply on Tuesday, in what is expected to be a busy year for the European market.
Fresenius is preparing to meet investors for the next stage of financing its 5.76bn acquisition of Spain’s biggest hospital chain IDC Salud Holding (Quironsalud).
Bankers say that M&A financing could make a big impact on January’s overall bond volumes, while expecting the European market to generally take a decent chunk out of a busy M&A pipeline throughout 2017.
British American Tobacco is expected to tap the market for M&A-linked supply, after it made a US$47bn bid for the rest of US tobacco company Reynolds American it does not already own.
Investors expect most of the financing to be issued in the US dollar market but say low costs could mean they issue a reasonable portion in euros in early 2017.
Bayer is another candidate with a hotly anticipated M&A-related deal, having said it will sell a mix of senior and hybrid debt to help finance its US$66bn takeover of US seed company Monsanto.
Bayer expects to close the transaction by the end of 2017.
This start of the year activity will give bond investors comfort for the rest of the month, bankers say, while primary issuance in other corners, namely the financials and SSA markets, are also well underway for a busy January. (Reporting By Laura Benitez)