LONDON: Air France SA-KLM launched a debut sustainability-linked bond worth one billion euros ($1.07 billion) on Monday, giving the European credit market its first major high-yield deal.
The French airline launched the sale of an expected three-year 500 million euro bond and a five-year 500 million euro bond after holding investor meetings last week. They set the coupon for each at 7.375% and 8.25%, respectively, down from earlier indications of 7.75% and 8.5%.
Orders for the three-year bond exceeded 1.4 billion euros and totalled around 1.3 billion euros for the five-year paper, according to a memo seen by Reuters.
The bonds are unrated, but are classified as high yield given their expected coupon. In comparison, the ICE BofA HY index was quoted at close on Friday at a price of 310 basis points (bps) for a yield of 7.1%, according to Refinitiv data.
Last week, a number of European investment grade companies sold debt, trying to make the most of supportive macroeconomic conditions, after a round of data pointed to an easing in inflationary pressure in the euro zone.
Investors were expecting a well-known, bellwether credit name to try its luck with a riskier high-yield debt sale.
“There is a high degree of focus on each primary HY issuance at the moment, so a successful offering can help build momentum and kick start the market,” said Jake Keaveny, a partner in Cahill’s Capital Markets & Lending group. Keaveny added there has also been price tightening in the secondary market, which could generate a more stable flow of HY issuances and grow the primary pipeline.
More high yield bonds could come in the weeks ahead, before the earnings season gets underway.
A steep rise in interest rates in 2022, compounded by market volatility, meant there was little supply of new European high yield corporate bonds last year.
Total new bond sales stood at around 20.8 billion euros in 2022, a far cry from 106.3 billion euros sold in 2021, according to Refinitiv data.
ING credit strategists said in a note on Friday that they “expect issuance volumes to pick up in 2023 after a particularly anaemic prior year.” They expect the rebound will be relatively gradual and total some 30 billion euros for the full year, well below the recent yearly averages. But, they said they “choose to view the glass for 2023 as half full for the European high yield market rather than half empty after a difficult previous year.”
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