By Laura Benitez
LONDON, May 16 (IFR) - US corporates will continue crossing the pond in droves in the next fortnight to lock in attractive ECB-fuelled funding costs ahead of the UK's upcoming Brexit referendum.
US companies including Johnson & Johnson and Kraft Heinz raised 7bn last week, accounting for nearly half of the total euro-denominated corporate bond issuance.
Johnson & Johnson's four-tranche 4bn "reverse Yankee" on Wednesday became the joint-third largest corporate deal in euros this year, behind trades in March from AB InBev (13.25bn) and Deutsche Telekom (4.5bn) - and in a tie with a deal in February from Honeywell.
And bankers say the jumbo Yankee issuance will not stop there.
Looking to this week, Coca-Cola European Partners is lining up a bond financing of at least 2.3bn across a multi-tranche trade, according to an investor who attended the London leg of roadshows in April.
The funds raised will be used to refinance the 4.8bn bridge loan backing the merger of Coca-Cola's three main bottling companies in Western Europe.
CCEP told investors in mid-April that it would issue the bond after it received a credit rating, and has since been assigned BBB+/BBB+ from S&P and Fitch. The borrower is also planning to print a sterling bond at a later date.
Other US names, including Nasdaq, Molson Coors, Bunge and Eastman Chemical, will add to Europe's heavy load of euro deals next week.
The transactions will compete with another heavy glut of corporate issuance from European credits, with over 12 deals in the public pipeline, most of which are expected for next week's business.
"It will be interesting to see how European names and US names will jostle," one DCM official said. "So far it's been very orderly, but the idea that there is so much supply coming and rumours of heavy reverse Yankee issuance are weighing on people's minds."
AN OPPORTUNITY
The expected flurry of US names could appeal to investors desperate for yield, with companies from across the pond well known for their pragmatic pricing approach.
For instance, US pharmaceutical and consumer goods company Johnson & Johnson offered investors a premium of up to 10bp for its 4bn trade, despite being the only corporate in the world rated Triple A by all three major ratings agencies.
"Investors needed to see some performance in the reverse Yankee paper this week before they start buying again," said Alex Hayes-Griffin, head of syndicate at Citigroup.
"But unlike late last year where the US paper underperformed on softer conditions, investors are now more open-minded about reverse Yankee issuance as it's a chance to pick up yield in a market where spreads on European companies are being heavily compressed."
A glut of reverse Yankee issuance, which accounted for over 57bn of the 253bn issued in the euro-denominated investment-grade market in 2015, saw deals from high-profile names tank in the secondary market in the second half of last year.
Of that 57bn, just 7bn came in the second half of the year.
ECB ALLURE
While US companies will not directly benefit from the ECB corporate sector purchase programme due to be launched in June, they have also sought to capitalise on a strong rally in euro credit following its March announcement.
However, speculation mounted that some US names could in fact be eligible when the central bank gave a wide definition of its purchase plans in mid-April that allowed it to purchase bonds from issuers incorporated in the eurozone.
But bankers say it still remains unclear if any US names stand to benefit.
"I don't expect the ECB's CSPP to have a big direct impact on most US issuers. Many don't have the infrastructure in place to create eligible European SPVs," said Hayes-Griffin.
"At this stage with no concrete criteria known around eligibility it's not worth the time and investment to create something that might not qualify. I expect there to be only a handful of US names that can be bought by the ECB when all is said and done." (Reporting By Laura Benitez, editing by Matthew Davies and Ian Edmondson)
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