The dollar market's rude health was amply demonstrated on March 5 when BP made its largest ever single visit to the bond market, a $3.25 billion transaction spread over three tranches. The issue came the day after BP filed its 20-F form with the SEC, a document foreign issuers of private securities in the US are obliged to complete. "In common with all the oil majors given the direction of the oil price over the last year, BP's funding requirements for working capital and capex have gone up," says Mark Lynagh, a member of the UK and Ireland corporate DCM team at BNP Paribas, which led the deal with Barclays Capital, Credit Suisse and Goldman Sachs. "Also, they have four closed periods a year, and documentation limitations. They had a relatively small first-quarter issuance window, from filing their 20-F to the end of March." The need to move quickly was further heightened by the imminence of non-farm payroll numbers (at the end of that week) and a heavy pipeline of expected issuance. The leads opted for three-, six- and 10-year maturities, with the shorter tenor attracting the most interest with more than $3.5 billion of orders, and the other two both gleaning orders in excess of $1.5 billion. The six-year offering was designed to avoid swamping investors, as BP raised $3 billion of five-year paper in November. "We were able to look at a number of pricing references," says Tim McCann, head of US syndicate at BNP Paribas. "As well as BP's 2013 last year, Chevron issued a three-, five- and 10-year deal a few days before. As a fresh deal from an issuer from the same sector and with the same rating it made a good comparable." In a market where issuers are routinely paying very large premiums, BP managed to keep funding costs down to a minimum, with the new issue premium at 10 to 15 basis points, depending on the tranche. "It's tricky to read the six-year premium because it was priced off the five-year treasury - you have to allow for the 5-6 year curve - but it was also in that range," says Lynagh. The manner of the deal's execution is a reflection of the dollar sector's strength. McCann notes that very few dollar-denominated deals are being soft-sounded at the moment, in contrast to the fourth quarter of last year, when it was pretty common. "That's particularly true for issuers whose outstanding bonds are liquid - highly rated, well-known names. Soft-sounding is more common for the off-the-run triple-B names, cyclicals that are a bit harder to value. I think that's in contrast to Europe, where even some of the high-quality stuff is being soft-sounded." "This was an important trade for BP's 2009 funding requirement," says Lynagh. It is additional to previous capital-raising both in dollars and Swiss francs. "It's the largest capital markets issue they've ever done and I think it was pretty critical to get it right; a large chunk has been achieved coming out of Q1." Issuer: BP Date of issue: March 5, 2009 Bookrunners: BarCap, BNP Paribas, Credit Suisse, Goldman Sachs Size of deal: $3.25 billion Coupon: 3.125% (3yr), 3.875% (6yr), 4.750% (10yr) Rating: Aa1/AA Investor profile By country, 89% of the shorter tranches went to US accounts, with 95% placed domestically on the 10-year. 10% of the short bond went into Europe to satisfy retail demand. Investment managers took the bulk of each deal, with healthy flows into banks and other financial institutions, and insurance companies. Allocation reflects a global trend of increased retail interest, seen to the largest extent in the primary market but also a factor in secondary trading. "We've seen retail follow-on buyers over the course of this year in highly rated names, especially names with global brands that are well recognised," says McCann. This has been a feature in a number of sectors - BP itself did a $600 million Eurodollar transaction with a three-year maturity a few weeks before its latest trade, with a view to tapping into some of that demand. "The retail demand at the short end for high-quality names is not BP-specific, it's true for high-quality names in general," says Lynagh. "We've seen it here in Europe: if you're not getting anything on cash deposits and the equity outlook is pretty uncertain, parking your money in a highly rated short-dated corporate bond makes sense." Credit says ... This is a good achievement for BP, which has got a lot of its funding for the year out of the way before the end of the first quarter and is therefore less of a hostage to an uncertain future than it might have been....
Start a FREE trial or subscribe to continue reading:
Start a 4 week free trial
Try Risk.net's premium content for a limited period. Register now for your FREE trial to one of our leading brands.
*not available to previous trialists or subscribers.
Log In or Subscribe Now
Subscribe to Risk.net Business now to access all our premium news & features content for 1 year.
Pay by Credit Card for immediate access.