A record-low coupon sets up the Spanish utility’s financing for years to come. 

Borja García-Alarcón

Borja García-Alarcón

Corporates around the world raised more money in the bond markets in 2020 than ever before. According to Refinitiv, more than $5360bn was issued by firms looking to capitalise on yet another year of rock-bottom interest rates and quantitative easing. The record-breaking year was in no small part down to jumbo deals by regular issuers, but was also helped by the many infrequent borrowers which opportunistically tapped the markets at the right time.

Enagás is one of these. The owner and operator of Spain’s natural gas distribution network is among the raft of European firms switching bank loans for bonds. For Enagás, this makes particularly good sense — some 70% of its business is regulated by Spain’s competition authority, which results in stable cashflows that are not linked to natural gas prices. “For a company like us, which doesn’t present many risks and is easy for the market to read, I see a lot of advantages of going to the bond markets,” says Borja García-Alarcón, chief financial officer (CFO) of Enagás. “We only printed our first bond in 2009, but in the current rates environment — especially for a long tenor — it is better to go to the capital markets. 

An early refinancing

Predictable revenues mean Enagás has modest funding needs. But in January 2020, Mr García-Alarcón and his team began discussing the refinancing of a bond maturing in 2022. “We were monitoring the market and trying to decide if it made sense to wait until next year, or to take advantage of the very good market conditions,” he says. The firm’s last bond sale had been in October 2016, but every year it does non-deal roadshows with its banks, plus four investor calls, to keep bond-buyers updated and to remain plugged into financing opportunities.

After watching yields rise over spring as Europe battled the first wave of the pandemic, and then seeing markets return strongly after summer, the firm decided to bring the refinancing forward a year. The average maturity of Enagás’s outstanding debt was five years, and with no other refinancings or investments on the horizon — and to minimise long-term costs — the firm opted for a 12-year tenor instead of the standard 10 years. “At the current prices we thought it made sense to pay a bit — but not too much — more for two more years, with a view to extending the average life of our debt,” says Mr García-Alarcón.

Finding fair value

Enagás wanted to print the deal immediately after the announcement of its third-quarter results on October 20, but rumours about the launch of an important hybrid bond prompted the firm to wait a week longer. As with previous deals, there were no pre-deal investor calls; documents were prepared internally and Enagás waited until the night before launch to mandate its banks. These were CaixaBank and BNP Paribas as global coordinators, and Mizuho, Natixis, Santander and Société Générale CIB as active bookrunners.

After an early morning go-no-go call, books on the €500m deal opened at 9.30am on October 27 at an indicative price range of mid-swaps plus 80 basis points (bps). Enagás’s goal was mid-swaps plus 60 to 55 bps, and after 2.5 hours the deal closed at the upper end of that target range. “On paper, it is always easy to decide what the fair market value of a bond should be, but you have to be flexible,” says Mr García-Alarcón. “Maybe we left two or three bps on the table, but you never know if you are leaving that or nothing. And overall, I think it was a good transaction for us and investors.”

On paper, it is always easy to decide what the fair market value of a bond should be, but you have to be flexible

Borja García-Alarcón, Enagás

Indeed, the reoffer price was nearly 4 bps above the coupon; however, the 0.375% coupon was the lowest achieved by a Spanish corporate in 10 years. Investors from France and Germany together accounted for more than half of the orderbook, with the UK taking 5%, Spain 7%, and Norway and Italy both 4%.

The right banks

While Enagás prizes the flexibility offered by preparing bond sales internally, Mr García-Alarcón stresses the invaluable role played by global coordinators once the deal is launched. “The issuer’s merits are the most important thing, but you also have to choose the right banks,” he says, noting how pleased he was with CaixaBank and BNP Paribas on the October deal. “In my experience, the interaction with the head of syndicate who is managing the transaction is incredibly important as they see the other parts of the market.”

Funding aside, Mr García-Alarcón sees other benefits flowing from capital markets transactions. He considers it one of the most rewarding parts of his multifaceted job and as a way to identify future leaders. “It’s when you see whether a member of your team really understands the mechanics and dynamics of this type of transaction, and is ready to be CFO,” he says.

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