U.S. Issuers Look To tap Euro Investors
October 18, 1999
Companies based in the U.S. that receive most, if not all, of their revenues from U.S. operations essentially have no real need to tap the European investor base when issuing debt. But, an increasing number are doing so anyway.
The reason, according to London-based buy-siders, is two-fold. First, it simply increases the investor base; and second, it gives the issuers a foothold in the growing European market.
That would not have made as much sense even a few months ago, since the institutional investors in the European market were largely affiliates of the U.S. buyers. But even that has begun to change, with an increasing number of local funds earmarked for European paper.
One high yield investment banker in London said that several of his clients are considering adding a euro tranche to their respective offerings.
Issuers that exemplify this growing trend include Weight Watchers, Primus Telecommunications, and Spanish Broadcasting.
Weight Watchers started marketing its deal as a dollar-denominated issue and then included a 100 million euro tranche; Primus - which derives about 22% of its revenues from European customers - recently marketed a debt offering in Europe for the first time in its sale of a $250 million offering. And Spanish Broadcasting, which, despite its name is a U.S.-based radio-station company, is said to be considering a euro tranche to the deal that is now in the market.
Spanish Broadcasting and Weight Watchers could not be reached for comment, but Primus chief financial officer Neil Hazard said that the recent roadshow did indeed spend two days in Europe, a first for the firm.
It parlayed into little interest on the debt side - it helped more on the equity side, he said - but the European high yield debt market is definitely one that the firm is interested in for the future, he said.
One U.S. investor took the analysis a step further.
He said that, in general, the desire to diversify the holdings in a fund entails a greater demand for other currencies - not only euros but sterling and deutsche marks as well. And as that demand grows, there are more accounts being established for issues in those currencies.
However, since telecom still vastly dominates the European high yield market, one way that investors are starting to obtain the diversity they crave so much, is to buy dollar denominated deals in various sectors and then swap it into euros.
The problem that emerges, however, is the fact that swapping is still fairly expensive - costing anywhere from 120 to 200 basis points, depending on who you listen to, investors said.
And so, the issuers themselves are starting to feed the buy-side's hunger by simply making available various currencies in their offerings, the investor said.