Autos / Industrials / Utilities / REITs: Week in Review

Return to Normal
Primary was active with deals from RENAUL(RCI), TRAGR, EOANGR and STATK. After an extraordinary period of flat and even negative NIPs, the market was more balanced with NIPs mostly in the 5-10bp range. We also saw underperformance of secondary curves from primary issuers. Normalising sentiment was echoed in secondary with spreads around unchanged on average. THAMES (5-15 tighter) was a top performer as spreads continue to recover, with the focus seemingly on Kemble TopCo debt. SIENFI edged better (3-5 tighter) with signs turbine sales may be close to resuming. CE bonds (5 tighter) also performed well, on no news; we note the equity continues to climb and if optimism is justified this credit might be saved from fallen angel risk.

Closer to the Endgame?
There is a sense of inevitability to the weaker parts of the REIT sector falling to HY after nearly 2 years of interest rate driven stress. HEIBOS edged closer this week with Fitch moving to BBB- negative outlook, in line with S&P (no Moody’s rating). Despite the unsurprising move, spreads are 20-30 wider over the week. On the other hand, news of a potential equity investment into a subsidiary of CPI Property may have been taken as a sign of a bottom in sight. CPIPGR and fellow German struggler ARNDTN tightened 5-35bp on the week. EQIX had the misfortune of a Hindenburg short thesis release during € bookbuilding, resulting in the deal getting pulled. Spreads close the week 25-30 wider.

Non-Traditional Risk
EDF was near the top of our list for client inquiries this week, with the news that the company will produce materials for France’s nuclear weapons program. While ESG is hardly a new topic, we haven’t seen many examples of negative step changes resulting from new business activity. That might explain why it wasn’t until more than a day later that spreads began to move, widening 12bp on Tuesday afternoon. EDF bonds may see reduced future demand with a lower ESG score.