PepsiCo Inc. (PEP), the world’s largest snack-food maker, and phone-maker Nokia (NOK1V) Oyj marketed bonds in Europe as disappointing company earnings pushed corporate debt risk to the highest in a week.
PepsiCo is offering 10-year bonds in pounds, the company’s first securities in the U.K. currency, while Nokia is selling its first convertible bonds in euros. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings rose 14 basis points to 512 at 1.20 p.m. in London in the fourth consecutive day of increases.
Companies from Alfa Laval AB (ALFA), a Swedish maker of heat exchangers, to tea and coffee company D.E. Master Blenders have reported sales that missed analyst estimates, a signal that Europe’s recovery is slowing. The earnings reports helped stall the biggest weekly rally in credit markets in more than a month.
“We’ve had an amazing run of spread compression and it’s only natural that credit takes a bit of a breather,” said Ben Bennett, head of credit strategy at London-based Legal & General Group Plc. (LGEN) “There is still good demand for new issuance, particularly rare names or deals that provide more yield.”
PepsiCo’s 500 million pound bond will be priced to yield 87 basis points more than U.K. government debt, down from 95 basis points in initial marketing, according to a person with knowledge of the sale, who asked not to be identified because they’re not authorized to speak on the matter. The spread compares with 233 for Bank of America Merrill Lynch’s Sterling Corporate Securities Index.
A company official at PepsiCo in London declined to comment.
Nokia, which continues to battle falling sales and dwindling cash, is selling bonds convertible into its own shares to address approaching debt maturities, the company said. The 750 million euros ($978 million) of senior notes due 2017 can be handed over for Nokia shares when the stock rises 28 percent to 33 percent from the current market price, according to a statement from the Espoo, Finland-based company today.
Standard Chartered Plc, the U.K. lender, and Italy’s Unione di Banche Italiane SCPA (UBI), are also selling bonds in euros. That’s helping take today’s issuance to at least 3.4 billion euros, above this year’s daily average of 2.9 billion euros, according to data compiled by Bloomberg.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose four basis points to 127. An increase signals deterioration in perceptions of credit quality.
The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers climbed 34.9 basis points to 168, Bloomberg prices show.
A basis point on a credit-default swap protecting 10 million euros ($13 million) 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.
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