Nestle SA (NESN) and Belgian lender KBC Bank NV are selling benchmark-sized bonds in dollars as Rio Tinto Group notes dropped after the miner said it will take a $14 billion writedown for failed deals.
Nestle’s securities due July 2018 are its first in the U.S. currency since October when the Vevey, Switzerland-based food maker issued bonds paying a coupon of 1.25 percent. KBC is selling 10-year contingent notes designed to be written off if the bank’s capital falls below a preset level.
Sales of dollar bonds by European borrowers are rising with companies including Intesa Sanpaolo SpA and Daimler AG raising $26 billion this month, a 42 percent jump from the total for all of January last year, data compiled by Bloomberg show. London- based Rio’s Chief Executive Officer Tom Albanese is leaving after the writedowns the miner’s aluminum and coal businesses.
“Whilst these are non-cash charges, they are a negative for the credit as they underline the difficult operating environment and point to a more challenging cash flow generation environment,” Aengus McMahon, an analyst at ING Groep NV in London, wrote in a note to investors.
Rio’s 2 percent bonds due 2020 fell 0.9 percent, leading declines in Bank of America Merrill Lynch’s Euro Corporates Index and pushing the yield on the notes up 13 basis points to 2.08 percent.
Credit-default swaps on Rio rose six basis points to 90, the highest since Dec. 5, according to Bloomberg data at 10 a.m. in London. Contracts on Nestle rose two basis points to 31, the highest since Nov. 29, and KBC was unchanged at 170.
This month’s sales of dollar-denominated bonds by European issuers compares with $19 billion for all of January last year and $9.5 billion issued last month.
Ardagh Group SA, the packaging company buying Cie. de Saint-Gobain SA’s U.S. glass bottle unit, sold $1.6 billion of high-yield bonds in dollars and euros yesterday.
The cost of insuring against default on European corporate debt fell. Contracts on the Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings decreased 4 basis points to 424.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was little changed at 104 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased one basis point to 132 and the subordinated index fell two to 216.
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.
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net