ThyssenKrupp Sells 1.25 Billion-Euro Bond as Junk Issuance SlowsKatie Linsell
ThyssenKrupp AG, Germany’s biggest steelmaker, is selling 1.25 billion euros ($1.67 billion) of bonds in its first benchmark-sized deal in a year, as issuance of high-yield debt slows in Europe.
The company is marketing bonds due August 2018 that will be priced to yield 290 basis points more than the swap rate, the lower end of the marketed range, according to people familiar with the transaction. The Essen, Germany-based steelmaker last sold benchmark-sized notes in euros in February 2012, data compiled by Bloomberg show.
Sales of speculative-grade, or junk, debt by European companies slowed to 2.8 billion euros so far this month, down from 8.9 billion euros in January, a record for the month, Bloomberg data show. Junk bonds yield an average 5.9 percent, easing from an eight-week high of 6 percent on Feb. 5, according to Bank of America Merrill Lynch’s Euro Non-Financial High Yield Constrained Index. Yields reached a record low of 5.4 percent on Jan. 14.
“While this company has high-yield ratings, it’s very low-yielding and we’ll probably pass on this deal as there’s not enough juice,” said Steven Logan, the Edinburgh-based head of European high yield at Scottish Widows Investment Partnership Ltd. “There’s massive overcapacity in the steel industry and bonds from these companies don’t offer great value.”
ThyssenKrupp’s 4.375 percent bonds due 2017 fell 0.55 percent to 104.25. The company, which is cutting more than 2000 jobs from its European steel business, reported Feb. 12 that profit slumped 38 percent in the first quarter as the global economic slowdown eroded demand. ThyssenKrupp is rated Ba1 by Moody’s Investors Service, one level below investment grade, and one step lower at BB by Standard & Poor’s.
New Bond Issues
Unibail-Rodamco SE, Europe’s largest publicly-traded property owner, is selling 750 million euros of bonds due 2021 that will yield 83 basis points more than swaps, people familiar with the deal said. It’s the Paris-based company’s first bond sale since October, data compiled by Bloomberg show.
Swedish bank Skandinaviska Enskilda Banken AB is planning to raise 1 billion euros by selling seven-year covered bonds. Volvo AB, the world’s second-largest truck maker, is selling three-year fixed notes and five-year floating-rate notes in Swedish kronor, according to people familiar with the deal.
In derivatives markets, the Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly speculative-grade ratings rose one basis point to 440 at 1:00 p.m. London time, the highest since Feb. 12, according to data compiled by Bloomberg.
The Markit iTraxx Europe Index was little changed at 113 basis points, while the Markit iTraxx Financial Index of swaps on 25 banks and insurers was also little changed at 144 basis points.
Credit-default 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. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.
-- Editors: Jennifer Joan Lee, Tom Freke