Rolls-Royce debut US bond; ANZ fare war and oil prices

admin
By admin October 7, 2015 19:57

Rolls-Royce debut US bond; ANZ fare war and oil prices

Rolls-Royce has successfully priced its debut US dollar-denominated 144A/Reg S bond and raised gross proceeds of approximately $1.5bn. The transaction consists of $500 million aggregate principal amount of 2.375% notes due 2020, priced at T+105 basis points (bps) and $1bn aggregate principal amount of 3.625% notes due 2025 at T+160bps.  Bank of America Merrill Lynch, Citi, Goldman Sachs and JPMorgan are joint bookrunners.

The issuance was substantially oversubscribed, with particular interest for the ten-year notes, which are trading at 10 bps tighter in the secondary market today. We had a $9bn orderbook, and we compressed the pricing significantly from T+187.5bps to T+160bps on the ten year notes,” says Colm Rainey, head of debt capital markets at Citi. “Even though we came in a lot from the opening gambit, we only reduced that $9bn of orders to $8bn. Given such strong demand it is no surprise that it has moved even tighter in the secondary market.”

Investor interest was high following roadshows in London, New York, Boston and Chicago, with investors attracted to the A/A/A3 credit rating of Rolls-Royce Holdings, the new issuance premium as well as their understanding of this sector. However, the markets were very turbulent, which delayed the deal by two weeks. “Following the roadshows, the markets were very choppy – equities were tanking, commodities prices were struggling, there was bad news for Volkswagen and Glencore,” explains Rainey. “Hewett Packard also entered the market at the same time with a large transaction, which didn’t perform well in the secondary market that again delayed the deal. So we waited a few days for a better time, and yesterday was that day.”

Given the success of this deal and the apparent investor interest, Rolls-Royce are likely to see similar success for any future repeat deals.

Proceeds from this issuance will be used for general corporate purposes and to refinance an existing £400 million bond issue that matures in 2017, as well $200 million maturing in 2016 and $500 million in 2019.

Although the company issued a £1bn bond issue in 2013, this is the first time it has issued debt in the US 144A bond market. The company states that it is “very pleased with the level of interest from investors”.

Meanwhile, Air New Zealand has stated that increased passenger demand will drive an 85% increase in first-half earnings before tax to $NZ400m, up from $NZ216m for H12014 achieved. The earnings are said to exclude any equity-accounted contribution from its stake in Virgin Australia.

Chairman Tony Carter cited buoyant tourism in New Zealand, lower fuel costs, and fleet efficiency savings as the drivers for the improved margins.

ANZ executives stated today that the airline will lower prices to compete with Jetstar on regional routes in New Zealand, stating that “passengers should expect more competitive fares across the board this year”. Is a fare war about to take place as ANZ takes delivery of new aircraft? It would seem so.

Oil prices continued the slow climb back to +$50 a barrel prices today after an intra-day jump of 5% yesterday as the American Petroleum Institute stated yesterday that US crude-oil inventories are likely to have shrunk by 1.2m barrels. As a result New York Mercantile Exchange, light, sweet crude futures for delivery in November rose 1.7% to $49.33 a barrel, a five-week high. On the ICE Futures Exchange Brent crude for November delivery was trading up 1.7% at $52.80 a barrel.

The EIA has now lowered its production forecasts for 2015/16 and raised its oil-demand forecast at the same time. This came as the EIA report of this week does indeed suggest that there is now an element of doubt in play that serves to counter the argument that underlying global oversupply has not fundamentally changed over the past 12 months to date.

If on Monday OPEC releases an upbeat statement showing the slightest hint of slowing production and increased demand then oil price increases will gather pace. The current driver of oil prices seems to be US production and consumption – The former is well down on the year while the latter is growing.

So should the aviation sector be worried? Not yet, but the industry should be braced for pressure on share prices over the coming days and if the OPEC report next week does indeed send oil rising over $55 a barrel then at that point it might be worth asking if the window for high returns on mid to late life aircraft is diminishing. Airlines on the other hand should not be so quick to relax fuel surcharges just yet until the way forward becomes clearer.

admin
By admin October 7, 2015 19:57