DPWN to Issue €1 Billion Bond

Corporate bond prices hit rock bottom at the start of August, and have been rising ever since. Analysts say that spreads on European corporate bonds have tightened by 40 to 50 basis points on average in that period, with telecoms and autos spreads between 100 and 200 basis points tighter, depending on company. Industrial credits have seen more modest tightening, of between 10 and 20 basis points. ‘We have had a very good run over the last two weeks or so, in terms of both equity prices and credit spreads,’ said Giles Hudson on the syndicate at Morgan Stanley. ‘But things are now flattening out a bit.’ While there is theoretically still more potential for credit spread tightening, according to analysts, whether prices will continue to rise or not will depend on a number of factors. These include the amount of new corporate bond supply, the uncertain geopolitical situation regarding US and Iraq, and the health of the US economy. A rush of new US corporate bond deals in the dollar market last week was easily absorbed, say bankers, but the European market is looking less ready to accept high levels of issuance. One of the first corporate deals to test investor sentiment in Europe is likely to be a delayed five or 10-year issue worth at least Euros 1bn [US$984 ml] from Deutsche Post. The German postal services group had been planning to launch its deal in May, but the sale was postponed after the European Union ordered it to repay Euros 572m to the German state. This prompted fears of a possible credit rating downgrade, but its ratings have since been confirmed at Aa3/A+. The deal has taken several months to get back on track because of the extreme stock and bond market volatility that derailed many corporate bond issues over the summer months. Deutsche Post will be marketing its euro deal in the week beginning September 9, with a planned launch the following week. The transactions’ bookrunners are CSFB, Deutsche Bank and Morgan Stanley.