DJ DaimlerChrysler Draws $13B Demand For $2.8B Equiv Bond
By Henry J. Pulizzi
Of DOW JONES NEWSWIRES
(This story was originally published Wednesday)
LONDON (Dow Jones)--DaimlerChrysler AG (DCX) raised nearly $3 billion in European
and U.S. debt markets Wednesday, as investors eagerly bought into the automaker's
only major bond deal of the first quarter.
Reflecting demand of more than $13 billion, DaimlerChrysler ramped up the size of
the bond and was able to price at tighter-than-expected spreads.
The two-tranche transaction, via DaimlerChrysler North America Holding Corp., and
lead-managed by Banc of America Securities, Deutsche Bank and Goldman Sachs,
features EUR1.5 billion of 5.625% five-year bonds and $1.5 billion of 7.3%
10-year bonds. The tranches were expected originally to total EUR1 billion and $1
billion.
The euro tranche was priced at 118 basis points over swaps, in from initial price
talk of 125 basis points. The dollar bonds offered a spread of 225 basis points
over Treasurys, compared with early price talk of 230-235 basis points.
Ian Harjette, Banc of America's head of syndicate for Europe, the Middle East and
Africa, said demand for the euro tranche approached EUR7 billion, while orders
for the dollar tranche exceeded $7 billion.
The euro tranche "pulled in pretty much every bond investor in Europe," Harjette
said, adding that German accounts represented the largest portion, followed by
Italy and the U.K.
Despite the upsizing and tightening of the offer, investors and analysts were
loath to criticize the issue, saying DaimlerChrysler paper would even interest
investors who believe the company is not the most attractive of the Big Three car
makers.
"People want this name," said a trader in London.
They wanted it so much the bonds traded significantly higher in the gray market,
rising as high as 20 cents above the issue price. After price talk tightened,
however, the gray market price slid to five cents over the issue price.
But the tighter price talk didn't deter much interest.
"We thought the euro tranche showed a little more premium in the initial price
talk than the dollar tranche," said Nicole Jackman, head of European corporate
bonds at State Street Global Advisors in London. "At 118, it's expensive, but we
feel it's fair because they won't be coming back to the market this quarter."
DaimlerChrysler is rated A3 by Moody's Investors Service and BBB+ by Standard &
Poor's.
Last week, the company suggested its 2001 loss didn't exceed previous estimates,
but official figures won't be released until Feb. 20. Still, uncertainty remains
over the Chrysler division's ability to break even this year.
Barclays Capital analyst Juan Carrion is positive on the company and the bond
deal, however.
"By mid- to late-2002, we expect it to be evident to investors that
DaimlerChrysler will have the strongest credit profile of the Big Three going
forward," he said. "We expect the deal to perform well - it's the only major
DaimlerChrysler deal for the quarter, the company's fundamentals are improving,
and we expect auto spreads in general to tighten heading into February."
But not everyone is enamored with the new issue. "I'm still not that comfortable
with the auto sector as a whole," said Jeroen van den Broek, a bond strategist at
ING Barings in Amsterdam. "In our view, this is a play on the U.S. economic
recovery being very quick indeed."
Given looming 2002 redemptions of EUR12 billion after the first quarter, van den
Broek said the fact that Wednesday's offer will be the only DaimlerChrysler
benchmark bond of the quarter raises questions. He said better value can be found
elsewhere for investors looking for exposure to DaimlerChrysler, pointing to
credit default swaps and floating-rate notes, both of which trade significantly
wider than the new bonds.
-By Henry J. Pulizzi; Dow Jones Newswires; 44 207 842 9316;
henry.pulizzi@dowjones.com
(END) Dow Jones Newswires
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