Intesa, Enel Sell Bonds as Corporate Debt Risk Rises in Europe
The cost of insuring against default on European corporate debt rose for the first time in six days as finance ministers prepared to meet to discuss the sovereign crisis. Italy’s Intesa Sanpaolo SpA (ISP) and Enel SpA (ENEL) sold bonds.
The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose seven basis points to 538 at 3:15 p.m. in London. Italy’s second-biggest bank is selling 1.25 billion euros ($1.62 billion) of seven-year senior unsecured bonds, while the country’s largest energy producer is selling 2 billion euros of notes in a two-part deal.
European officials meet in Luxembourg today to discuss Spain’s finances and closer banking cooperation, while German Chancellor Angela Merkel visits Greece tomorrow before a summit next week aimed at easing the three-year-old debt crisis. Banco Popolare SC (BP) is also selling bonds as borrowers from Europe’s most indebted nations take advantage of investor appetite fueled by the European Central Bank’s plan to fix the crisis.
“It’s a continuation of the trend of seeing a fairly hefty amount of issuance in the periphery,” said Suki Mann, a strategist at Societe Generale SA in London.
Enel and Intesa’s offerings helped boost bond sales by banks and non-financial companies to at least 3.8 billion euros, the busiest day for issuance since Sept. 18 when 5.3 billion euros was raised, according to data compiled by Bloomberg.
Enel’s sale is the biggest in euros by a corporate borrower since Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, raised 2 billion euros of debt in a two-part deal on Sept. 24.
The company’s securities made up eight of today’s biggest price fallers in Bank of America Merrill Lynch’s EMU Non- Financial Corporates index. The utility’s 5 percent bonds due 2022 dropped 0.8 cent to 103.99 cents on the euro, pushing the yield to a one-week high of 4.57 percent, data compiled by Bloomberg show.
The average yield on investment-grade corporate bonds in Europe is 2.14 percent, just three basis points more than the record 2.11 percent reached Sept. 3, according to Bank of America Merrill Lynch’s index of notes with an average maturity of five years. The yield relative to the swap rate has shrunk 43 basis points this year to a three-week low of 120 basis points.
Intesa’s 4 percent 2018 bonds slumped 1.18 cent today to 99.77 cents on the euro. That’s pushed the yield 25 basis points higher to 4.13 percent, the highest in a week.
Credit-default swaps on Intesa rose for the first time in more than a week, climbing four basis points to 321, and Enel increased four to 241. Swaps on Banco Popolare fell for a fifth day, dropping 13 basis points to a more than two-week low of 495 basis points.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose two basis points to 128. An increase signals deterioration in perceptions of credit quality.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose three basis point to 181 and the subordinated index increased three to 314.
A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net