Alstom Leads Bond Issuance as Credit Risk Declines in Europe
Alstom SA (ALO) is selling bonds for the first time since October as the cost of insuring European corporate debt against losses fell to the lowest in almost two weeks.
The world’s third-largest power-equipment maker is raising 500 million euros ($652 million) from six-year securities that will be priced to yield 165 basis points more than the mid-swap rate, according to a person familiar with the transaction. That compares with an average 140 basis-point spread for similarly-rated BBB securities, Bank of America Merrill Lynch index data show.
Credit risk is easing as investors digest the Federal Reserve’s plan to reduce stimulus measures. It surged to a seven-month high in June after the central bank’s Chairman Ben S. Bernanke said policy makers may begin slowing their bond purchases this year and end them in mid-2014.
“Fed officials have expressed their surprise at the extent of the market move, and have softened their tone on the possible exit strategy,” said Andrea Cicione, a strategist at Lombard Street Research Ltd. in London.
Isabelle Tourancheau, a spokeswoman for Alstom based in the Paris suburb of Levallois-Perret, wasn’t immediately available to comment on the bond sale.
The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings fell three basis points to 117 basis points at 12:15 p.m. in London, the lowest since June 19, according to data compiled by Bloomberg.
Also in the new issue market today, German utility Vier Gas Transport GmbH is selling 10-year euro bonds that will be priced to yield 113 basis points more than swaps. The borrower is rated A- by Standard & Poor’s, four levels above junk.
“In terms of issuance, investors want to see a bit of stabilization,” said Cicione. “It’s easier for investment-grade companies to issue than high-yield or emerging market borrowers.”
GDF Suez SA (GSZ), Europe’s biggest utility by market value, is holding calls with investors for a potential sale of hybrid bonds, securities that combine elements of debt with equity, in euros and pounds. Companies issued a record 13 billion euros of hybrid debt this year, according to Bloomberg data, as they look to bolster capital ratios without diluting shareholders.
The Markit iTraxx Crossover Index of contracts on 50 high-yield companies dropped 10 basis points to 467, also the lowest since June 19. A decrease signals improvement in perceptions of credit quality.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell one basis point to 168, while the subordinated index dipped one basis point to 250.
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.
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