Credit: REUTERS/CHRISTIAN HARTMANNNEW YORK, Oct 2 (IFR) - Pernod Ricard – known for its anise-flavoured pastis aperitifs, but also the maker of Jameson Irish whiskey, Absolute vodka and Glenlivet Scotch anise-flavoured pastis aperitifs raised US$2bn in what was the biggest deal in the US high-grade bond market on Wednesday.
The France-based company priced a US$600m seven-year bond at Treasuries plus 85bp, a US$900m 10-year at 105bp over and US$500m 30-year at 145bp over
Final spreads came at the tight end of guidance and inside respective initial price thoughts of the 110bp, 130bp and 175bp areas.
That was largely positive price action for a credit that is still exposed to risks related to the Covid-19 pandemic.
Yet with few outstanding dollar bonds, the deal brought some rarity value and an opportunity to renew exposure to the credit at a lower dollar price.
Pernod has predominantly been an issuer of euro-denominated bonds and was last in the dollar market in 2016 when it sold a 3.25% 2026 – its first deal in that currency since 2012.
The 2026s have been trading at a G-spread of around 60bp, while its longest dated dollar bond – the 5.5% 2042 – has recently been changing hands at around 175bp, according to MarketAxess data.
Both bonds are trading at high dollar prices, making new bonds priced closer to par more attractive for some investors.
"There’s definitely a little concession here for investors, and the reason for that is that it’s somewhat of an under-followed name," one broker-dealer said.
"They issue in both euros and US dollars, so the capital structure is not inundated with US dollar bonds. So, when they come here to issue, it takes people some time to get up to speed on the credit."
And much like other borrowers, the incentives for tapping the dollar market remains strong in this low-rate environment as Pernod seeks to take out relatively high-coupon bonds, in this case, the 4.83% April 2021s and the 4.45% 2022s.
Coupons on Wednesday's seven, 10 and 30-year were much lower, at 1.25%, 1.625% and 2.75%, respectively.
Even so, analysts at research firm CreditSights would not be buyers of any of last week's paper after tightening and prefer Pernod's higher-rated, UK-based competitor Diageo – the maker of brands such as Gordon's gin and Smirnoff vodka.
Diageo, rated A3/A–, was in the dollar market in April, when it issued 1.375% 2025s, 2% 2030s and 2.125% 2032s, which have recently been trading at G-spreads of around 58bp, 98bp and 100bp, according to MarketAxess data.
CreditSights points to Pernod's relatively low exposure to the more resilient US market, where spirits remain the drink of choice during the pandemic.
Pernod also generates more revenue in Europe where renewed restrictions on bar openings in France and the UK could have an impact on sales.
In a report last month, Fitch cited more lockdowns as a threat to growth at both Diageo and Pernod, which before the pandemic saw sales in pubs, restaurants and bars contributing to about 20%–25% of revenues.
That said, Fitch noted that operating profits at both companies had been more resilient than initially expected.
And some investors see the risks as comparatively benign compared to earlier this year, when stricter lockdowns raised concerns about the sector.
"The agencies were looking at this name as well as Diageo to not show any growth in the bar/restaurant sub-segment until 2021," the broker deal said.
"So, the fact that they can show some growth in the back half of 2020 means it's exceeding expectations."
Pernod Ricard's deal was run by Bank of America, Goldman Sachs, JP Morgan, Morgan Stanley, Royal Bank of Canada and Wells Fargo.
(This story will appear in the October 3 issue of IFR Magazine.)
((william.hoffman@thomsonreuters.com; 646 223 6141;))
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