Increasing risk appetite and the Greek-agreement leads to a significant spread tightening across indices

What’s on our mind

- General credit market news

• Last week added more than EUR11bn of supply across senior and subordinated notes in the EUR primary market. We saw multiple times oversubscribed order books, issues with very low coupons and very large hybrid tranches.

• Increasing risk appetite and the bridge-financing agreement reached for Greece led to significant spread tightening across all indices (especially the high beta part of the market). iTraxx Main and Crossover tightened 6bp and 30bp respectively during last week.

• The very hot current temperature of the credit markets can be illustrated by the hybrid deals issued by Total and TDC respectively;

• Total issued a subordinated perpetual non-call 6yr instrument (Aa3) with a coupon of 2.25% and a subordinated perpetual non-call 10yr instrument (Aa3) with a coupon of 2.625%. Both issues were oversubscribed by 4x in aggregate.

• TDC issued a subordinated non-call 6yr instrument (Ba2e) with final legal maturity in 3015 and priced with a coupon of 3.5%. This issue was oversubscribed by 5.5x. In addition TDC issued a 12-year senior with a coupon of 1.75% and an oversubscription of 3.5x. The spread on the sub issue tightened moderately in the secondary market.

• Vestas (DBM shadow rating of BBB-) announced its plan to go on a pan-European roadshow shortly. Depending on investor feedback a euro-denominated bond issue may follow.

Buy SSAB EUR 2019s against SSAB SEK 2019s (published 16 Feb)

• From a credit perspective, SSAB showed steady progress in its Q4 results despite a slight underperformance versus consensus earnings. Cash flow was not enough to reduce the overall net debt but credit metrics still managed to improve due to a larger LTM adjusted EBITDA.

• Credit metrics are, in our view, a little on the weak side for the group’s ‘BB-’ rating but S&P has built in an improvement in its base-case scenario and, as such, the rating should not be in danger given the strong momentum SSAB is currently seeing.

• We expect 2015 to be positive from a credit point of view with improved earnings and further improvements in credit metrics.

• The SEK bond trades at bid 97.26 (ASW EUR6m 322bp) and the EUR bond at ask 100.75 (ASW EUR6m 341bp).

• The trade provides a pick-up of 19bp with 1.5 months extension, which in our view seems attractive.