The retail sector took centre stage in Europe's corporate bond market on Tuesday, as British supermarket group Tesco prepared to issue bonds, while a bid for electrical goods retailer Kesa unsettled some of its peers.
Tesco, Britain's biggest supermarket chain, set price guidance on a four-part sterling and euro bond sale that will total 1 billion pounds, a banker familiar with the deal said.
The sale will comprise a benchmark five-year euro bond, priced to yield in the "low 20s" basis points over swaps, alongside three longer-dated sterling bonds, the banker said.
The sterling tranches will be: a 17-year sterling bond priced to yield in the area of 80 basis points over UK government gilts; a 30-year index-linked bond yielding about 90 basis points over gilts; and a 36-year bond also yielding about 90 basis points over gilts.
The bond sale comes hot on the heels of a surge of investment-grade corporate bond issuance. This year's corporate euro bond sales totalled 29.5 billion euros by Monday, according to Societe General data, up 28 percent from a year earlier.
Retailers were also in focus in the secondary market, after Kesa Electricals Plc, Europe's third-biggest electrical goods retailer, rejected a 1.7 billion pound bid approach from a private-equity consortium, sending the sector's shares soaring on hopes of more bid interest.
Kesa does not have any public euro debt after postponing plans for its debut euro bond earlier this year, but speculation about debt-heavy leveraged buyouts (LBOs) rattled debt in its larger rivals, dealers said.
Default swaps on DSG International's Dixons and Kesa's former owner Kingfisher rose, with five-year default swaps on Dixons 3 basis points higher at 53 basis points, and CDS on Kingfisher 2 basis points higher at 61 basis points, a trader said.
That means it costs 53,000 euros a year to insure 10 million euros of Dixons' debt against default.
"We've seen all the equity prices go up, and the CDS has tried to widen out, but if people really thought there was some leveraged buyout to go on, then we'd see CDS trading a lot wider than they are," the trader added.
Debt in French retailer Casino rallied slightly after it completed the sale of a 15 percent stake in property group Mercialys, for a capital gain of about 110 million euros, to help cut its debt.
Five-year default swaps on Casino fell 4 basis points to 128 basis points, the trader said. "They were trading very weakly anyway: they were trading like a sub-investment grade credit, which they are not yet," he added.
In the primary market, New Zealand dairy giant Fonterra Co-operative plans to sell euro and sterling-denominated bonds after meeting investors next week, an official at one of the banks managing the sale said.
Fonterra plans to sell a fixed-rate, seven-year sterling bond, and a four-year euro floating rate note (FRN), after investor roadshows from March 21 to March 23, the official said.
Deutsche Bank and HSBC are managing the deal for Fonterra, the world's largest dairy exporter.
And British services group Rentokil Initial was concluding investor roadshows for its planned 7-to-10-year sterling bond sale.
The deal will probably total at least 250 million pounds, and will contain a "change of control" covenant, designed to safeguard bondholders against the risk of a debt-heavy take-over of the company, a banker familiar with the deal said last week.
In the wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 49.0 basis points more than similarly dated government bonds at 1628 GMT, 0.3 basis points less on the day.
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