EUROBONDS: Bond Deals Pushed Through Ahead of EU Summit
06/27/2012| 09:27am US/Eastern
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By Art Patnaude
A cautious calm pervaded the European credit market Wednesday, leaving the window open for a smattering of bonds to push through the primary market ahead of an expected slowdown during the European Union summit.
EU leaders will meet Thursday and Friday to address the euro-zone's escalating sovereign and bank debt crisis.
Syndicate bankers in London said the meeting will likely limit bond issuance and lower secondary market trading volumes. The week also marks the end of the first half of the year and second quarter, events that typically dampen activity, one of the bankers said.
In the run-up to the events, Bank of Georgia Holdings PLC (>> Bank of Georgia Hldg PLC), the holding company of the Georgian bank, was the second issuer from the country to be selling debt this week. The lender set price guidance on its dollar-denominated, five-year bond around the upper end of 7%.
State-owned Georgian Railway earlier priced a $500 million, 10-year bond.
The two corporates planning bond sales were both from euro-zone countries that have requested international bailouts during the crisis.
From Ireland, energy provider Bord Gais Eireann, or BGE, planned a series of meetings with fixed-income investors in Europe to start July 2.
Portugal Telecom (PT) said it would sell bonds worth 250 million euros ($312 million) to retail investors. The four-year debt will carry a coupon of 6.25%. The bond was announced along with a dividend cut and share buy-back program.
German development bank KfW and The European Investment Bank both decided to increase the size of one of their existing bonds.
KfW was tapping its 1.875% bond maturing in March 2019. The minimum EUR1 billion increase will price at seven basis points below midswaps.
The EIB will increase the size of its EUR3 billion bond maturing in September 2021 by EUR1 billion.
Meanwhile, analysts were adamantly repeating that EU leaders are not expected to pass any substantial policy shifts at the upcoming summit. As this has become a common theme at such meetings, the credit default indexes remained positive.
At around 1255 GMT, the iTraxx Europe index, which comprises 125 high-grade borrowers, 25 of which are banks and insurers, was at 177 basis points, two basis points tighter from the close Monday, according to data-provider Markit.
The Crossover index of 40 mostly sub-investment-grade European corporate borrowers was eight basis points tighter at 706 basis points.
Credit default swaps are derivatives that function like an insurance contract for debt. If a borrower defaults, sellers compensate buyers.
Sarka Halas, Serena Ruffoni and Carol Dean contributed to this report
Write to Art Patnaude at art.patnaude@dowjones.com
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