AT&T, Ocado Defy U.K. Political Risks to Sell Sterling Bonds

  • Deals are first in sterling debt market since U.K. election
  • Long tenor on AT&T bonds invite 20-year sterling exposure

The pall of uncertainty hanging over the U.K. economy in the wake of last week’s election hasn’t shut the sterling bond market. 

U.K. online grocer Ocado Group Plc and U.S. communications company AT&T Inc. are both selling sterling bonds on Wednesday, the first deals in the currency since the June 8 vote. AT&T’s 1 billion pound ($1.27 billion) offering of notes due in 2037 is also the longest tenor on a sterling corporate bond in a month, suggesting the company expects investors will be comfortable with long-term exposure to the U.K.

“The election has had no impact on the sterling credit market,” said Simon Blundell, a London-based corporate bond fund manager at BlackRock International Ltd. “There is a very strong technical in the sterling market at the moment. It’s very well bid, which means issuers can feel confident they can get deals done.”

Ocado, rated sub-investment grade, issued bonds for the first time to help fund expansion plans. It increased the size of its deal to 250 million pounds from an original target of 200 million pounds, using the additional proceeds to bolster its balance sheet. 

Buoyant Market

It sold into a buoyant sterling corporate high-yield market that, even without the new money raised on Wednesday, has seen 8 billion pounds of bonds issued this year, almost double the volume for the whole of 2016, according to data compiled by Bloomberg.

Ocado offered seven-year bonds at 4 percent, having already tightened guidance earlier in the day to around 4.125 percent from about 4.5 percent initially, a level that looked “okay for the rating," according to Aman Mahal, high yield analyst at Henderson Global Investors in London.

AT&T, meanwhile, is selling bonds outside its home U.S. market for the second time in a week after pricing a 7 billion euro transaction on June 7. It will price its deal at 202 basis points over the U.K. Treasury benchmark, compared with initial talk of 210-215 basis points. Proceeds from the investment grade-rated issuer’s deals will help fund its acquisition of Time Warner Inc.

“AT&T have a lot of long-dated sterling debt outstanding, so the GBP market knows them and all about their funding needs,” BlackRock’s Blundell said.

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