Oct. 13 (Bloomberg) -- Telecom Italia SpA and Iberdrola SA are selling bonds as optimism of a solution to the region’s sovereign debt crisis fuels a credit-market rally.
Milan-based Telecom Italia is issuing 750 million euros ($1 billion) of notes due January 2017 to yield 7.15 percent, a banker managing the deal said. Iberdrola, Spain’s biggest power utility, is offering 600 million euros of five-year securities, according to a banker with knowledge of the transaction.
Investors are counting on German Chancellor Angela Merkel and French President Nicolas Sarkozy finding an exit from the crisis that has forced the European Central Bank to support Spanish and Italian government debt. A summit of euro leaders is due Oct. 23 when aid for banks and a further strengthening of the region’s rescue fund are due to be agreed.
“At this stage I’m expecting good performance from these issues,” said Christophe Herpet, a fund manager at Axa Investment Managers in Paris that covers about $735 billion of assets. They “are very attractive deals at a nice premium versus Italian treasury bonds and Spanish government debt,” he said.
This week’s rally has triggered an almost 10 percent decline in benchmark credit-default swaps indexes. The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings dropped to 739.5 basis points today from 813.5 on Oct. 7, according to JPMorgan Chase & Co. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell to 233 basis points from 253. Declines signal improvement in perceptions of credit quality.
Iberdrola’s bonds will be priced to yield 290 basis points more than the benchmark midswap rate, according to the banker, who declined to be identified before the deal is completed. Banco Bilbao Vizcaya Argentaria SA, Bank of America Corp., Deutsche Bank AG, Goldman Sachs Group Inc., ING Groep NV and Mizuho are managing the transaction.
Telecom Italia’s bond sale is being managed by BNP Paribas SA, Deutsche Bank AG, Banca IMI SpA, Banco Bilbao Vizcaya Argentaria SA, Citigroup Inc., Credit Suisse Group AG and Mediobanca SpA.
--With assistance from Benjamin Martin and Abigail Moses in London. Editors: Michael Shanahan, Andrew Reierson
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