A Day in the Life

Life goes on in the Eurobond market, according to the attached example of the daily report on the primary market as reported in the London Financial Times. But how many of the bonds that were brought to market on May 27 were ordinary folk? Examine each of the issues, taking into account any associated commentary and footnotes, and try to identify in each case what (1) the investor is getting, (2) the underwriting banks are getting, and (3) the effective cost to the issuer. Pay particular attention to reasons for the differences in coupons between different issues.
 
 

LONDON. THE PRIMARY MARKET was busy yesterday as several specially structured issues were placed and a quarter-billion deal backed by cellular phone receivables met a warm reception.

 The latter was a $250 million issue brought by Credit Suisse for Celworks Trust 1990-1, a special purpose vehicle for the securitization of receivables for cellular telephones serviced by Cellular Network Inc. The issue had been extensively marketed by a large syndicate of banks in Europe and in Asia.

 Demand was heavy, with traders reporting strong speculative interest from investors who believed the deal would see even stronger interest in Japan. As a result the spread tightened to Treasuries. Credit Suisse set the offer price at 99.80, giving a spread over US Treasuries of 68 basis points. (At launch time the benchmark 7-year Treasury note was yielding 8.45%.)

Having been fully placed, the issue was quickly freed to trade and rose to 99.85 bid. The issuer was said to have swapped half the proceeds into floating rate US dollars to achieve an attractive sub-Libor funding rate.

 The Eurobond market also managed to absorb a $500m Japanese warrant deal, one of the largest of its kind since the plunge of the Tokyo stock market. Nomura, the lead manager, reportedly placed the bulk of the deal back in Japan.

 Credit Suisse First Boston was the lead manager of a $150 m three-year bond for Holderbank Inc., the Swiss cement concern. The bonds offered a 9 3/4 per cent coupon, and were snapped up by eager Swiss investors.

 CSFB was quoting the paper at 100 1/8 bid before the Treasury market backed off, when the price moved to 99 7/8 bid, still very comfortably inside the 1 3/8 per cent full underwriting fees. Traders opined that the terms were very generous, and speculated that Holderbank might even have been able to borrow the funds more cheaply by going direct to the banks for a loan. "It's a gift," said one official.

 Merrill Lynch brought a $100 million convertible deal for Battle Mountaingold to a lukewarm reception given today's weakness in the price of gold. The borrower is a US gold producer with interests in Australia and Papua New Guinea.

 The par-priced bond were trading at 99 1/8 bid among fair demand from Swiss institutions and gold funds based in France. A Merrill official said that the paper was one of the few gold instruments that carried a good yield in addition to upside potential.

 In the French franc sector, Credit Commercial de France was the lead manager of a fungible FFr750m deal for SNCF, the state railway authority. Combined with the already outstanding FFr2bn of bonds, the deal produced the largest French franc issue on the Eurobond market.

 The new paper gave little away to investors, with pricing at 37 basis points over OATs putting it in line with the trading level of the outstanding bonds. CCF said that the issue was trading slightly outside fees, at less 1 7/8 bid.

A L100bn deal for Viennische Stadtsbank traded around full fees, and was in demand from German as well as Italian funds. Proceeds were swapped into floating-rate US dollars.

 A 15bn four-year issue for Irish Building Society was launched by IBJ International. The lead manager said the bonds were aimed at specific accounts and would not trade actively. The same was said to be true of the Bank of Montreal issue led by Nippon Credit International. The yen-denominated issue's principal was linked to the performance of the Japanese stock market.

 Deutsche Bank brought a Pta10bn five-year Matador deal for Eurofima to a slow reception as European investors' infatuation with the Spanish currency seems to be wearing thin.

 Fuqua Industries, a US consumer products group, announced in Switzerland a partial buy-back offer on its Sfr100m 6 per cent deal issued by Warburg Soditec in 1989. The borrower said it is willing to buy up to Sfr30m of the deal at 82 per cent plus accrued interest. Before the offer, which is open until tomorrow, the paper was trading at around 76 points.