Luxottica Sells First Benchmark Bond as Italy Suffers From Budget Crisis
Luxottica Group SpA, the Italian owner of the Ray-Ban sunglasses brand, raised 500 million euros ($702 million) from its first benchmark bond issue as the country struggles with the fallout from Europe’s budget crisis.
Luxottica priced the five-year notes to yield 200 basis points more than the benchmark swap rate, according to data compiled by Bloomberg. That compares with an average 127 basis points for investment-grade European company notes with a similar maturity, Bank of America Merrill Lynch data show.
The Milan-based company sold debt as the extra yield investors demand to buy Italian 10-year government bonds instead of German debt doubled this year on concern that budget cuts in the euro region’s most-indebted nations will hurt growth. Prime Minister Silvio Berlusconi passed a 25 billion-euro austerity package earlier this year to reduce a deficit of 5.3 percent of gross domestic product, more than the region’s 3 percent limit.
“I think the deal will go okay despite the country risk,” said Juan Esteban Valencia, a credit analyst at Societe Generale SA in London. “Rare issuers and inaugurals have a good opportunity to raise funds to help satiate the hunger for credit.”
Luxottica, which isn’t rated by firms including Moody’s Investors Service and Standard & Poor’s, last issued bonds in January when it sold $125 million of notes in two parts, Bloomberg data show. Its new euro issue is benchmark in size, which typically means at least 500 million euros.
Luxottica spokeswoman Barbara Di Martino in Milan couldn’t comment on the sale before a public announcement.
Banca IMI SpA, BNP Paribas SA, Deutsche Bank AG and Mediobanca SpA managed the sale, Bloomberg data show.
Investors are buying up riskier corporate assets as government bond yields remain near record lows. Ten-year German bunds, Europe’s benchmark government security, yield 2.45 percent compared with 3.43 percent at the start of the year. The yield declined to a record 2.087 percent on Aug. 31.
The cost of insuring against a default on Italy’s government bonds has soared this year amid Europe’s deficit crisis. Credit-default swaps on the nation were at 179.5 basis points today, from as low as 125 basis points on May 12, according to data provider CMA. The contracts climbed to as high as 230 basis points on Aug. 31.
The yield premium on 10-year Italian government bonds over German bunds is 149 basis points from 69 basis points in January. The spread widened to a record 186 in June.
Italian government bond spreads are still the lowest among Europe’s so-called peripheral countries, including Greece, Portugal and Spain.
Unlike Spain and Ireland, Italy’s economy will grow 1 percent this year and next, the International Monetary Fund estimated on Oct. 6. Meantime, consumer confidence unexpectedly rose in October to the highest since April, the Isae Institute said last week.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase signals deterioration in perceptions of credit quality.
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net