MNI Credit Weekly: Idiosycratic Risks

Our IG index stopped its march tighter this week with a very minor widening led by financials and the consumer cyclicals. There was only relatively limited newsflow and this brings us to our two key themes this week:

• Primary issuance: this was the busiest week of supply YTD which the market took down well - NICs increased slightly from prior weeks but remained roughly in line with YTD averages. Perhaps this is more of a return to normality. Supply was tilted towards financials with over half of the nominal supplied coming from Banks.
  • We also saw our first two failed deals: Raiffeisen had already priced its AT1 issue tight to our fair value when the US government made it clear it still had issue with the bank’s attempts to offload its businesses in Russia and Belarus. Equinix was in the midst of raising a benchmark green bond when it was ambushed by a short-selling report from Hindenburg Research. Both issues were promptly called off and, in the case of Raiffeisen, leaves it at risk of failing to call an AT1 in June. This would be the first such event this year, we believe.
    
• Idiosyncratic risk: overlapping with the above, the key events have been very much issuer-specific and from unexpected quarters. The Raiffeisen situation is understandable, but we would have thought the bank would be in such close contact with authorities as to mitigate this risk. EDF was hit out of concerns from the ESG lobby over its collaboration with the French state over supply of nuclear materials. It would seem that market had overlooked its huge nuclear estate. Kering and Prudential both warned on weak growth in APAC, focussed on China. Atos saw their asset sale to Airbus fall through with the French government speaking of a “national solution” for the company while Altice creditors have engaged advisors for debt talks after management spoke of haircuts.

Full piece here:

24.03.22 MNI Credit Weekly.pdf