YPF Squeezes Bond Pricing as Order Books Swell
Argentina oil company YPF was set to raise US$1bn through a five-year bond on Friday, wrapping up its funding needs for the year and getting in ahead of a multibillion dollar deal from the sovereign.
With books reaching north of US$3bn, leads were able to squeeze pricing by 37bp from start to finish before launching the bond at a final yield of 8.5%, inside guidance of 8.75% (+/- 12.5bp).
At that level, the new five-year bond, rated Caa1/CCC+, is seen coming flat to 12bp wide to fair value along the company's interpolated curve, where the 2018s and 2025s have been trading at 7.65% and 9.125%, respectively.
The bonds were already being quoted in the grey market on Friday at plus 0.5-0.75 after reaching a high of plus 1.00 earlier in the session, according to a New York based trader.
Optimism over the prospects for the South American country as the government nears the end of an over 10-year legal battle with holdouts has buoyed appetite for Argentina assets.
This week's jump in crude prices to above US$40 a barrel no doubt also helped bolster interest in the Argentina oil company.
But concerns about pending supply have capped any upside as the sovereign prepares an up to US$12bn multi-tranche bond sale for next month to make good on payments promised to holdout investors.
"This is an appetizer before the main meal," said one banker away from the trade.
YPF, whose credit spreads have widened during this year's crude rout, opted to move ahead of any potential waves caused by the jumbo sovereign trade and to take out shorter-dated money in an effort to save on funding costs.
"Because we do not feel comfortable paying the high yields our bonds are trading at, we have decided to issue in the short-part of the curve," YPF CFO Daniel Gonzalez told investors on a conference call this week.
Gonzalez said the company would cut capex by about 25% to maintain its target of a net debt to Ebitda ratio of 1.5x.
"We know that this year we will likely see our leverage slightly above that target ratio, but we are committed to returning to positive free cash flow soon to go back down to the 1.5x level," he said.
The YPF deal comes on the heels of a US$360m seven-year non-call four trade from real estate firm IRSA, which priced at 98.722 with an 8.75% coupon to yield 9%, the tight end of 9.00%-9.25% guidance and inside IPTs of low to mid 9%.
YPF is expected to price the 144A/RegS bond later on Friday through leads Credit Suisse, JP Morgan and HSBC.
Reporting By Paul Kilby
