Investors who might otherwise be enjoying the sunshine would have been disturbed by a series of bond prospectuses hitting their doormats over the summer months. Three new retail bonds have been issued, or are in the process of coming to market, in as many weeks. Property companies, in particular, are using the ORB retail bond market to diversify their funding. The increasing liquidity and range of bonds available offers investors greater flexibility in diversifying their risk, but prices are getting keener as companies, and their advisors, wise up to the level of demand.
The demand for the recent issues has been strong; both bonds for Primary Health Properties and European property specialist CLS saw such a clamour that both offers were closed early. Investors are scrambling to secure yield in the current negative real interest rate environment, but have been discouraged by the volatility of the general equities market. The phenomenon has been mirrored in the US, where high-yielding bond funds have been the big winners with net-flows of $270bn (£170bn) so far this year. Still, it is medium-sized companies with stable revenues that are the kind of firms the LSE was hoping to attract when it launched the ORB market in 2010 and the average funding size of £50m has proven popular so far with investors and firm's alike.
So popular, in fact, that coupons are getter leaner in comparison to when the market first opened. Take Intermediate Capital's latest offering. The specialist fund manager and mezzanine financier is following up its initial 7 per cent bond, maturing in 2018, with a 6.25 per cent 2020 offering. Canaccord's Mark Glowrey says this partly reflects the decline in yields in the gilt market - 2020 gilts yield just 1.2 per cent, for example. The lower coupon is also explained by the fact that Intermediate Capital's 7 per cent bond currently has a yield to maturity of 5.8 per cent after rising to a price of 105p in the secondary market. Subscriptions are scheduled close on 12 September.
Meanwhile, larger cap companies are also busy raising funds from smaller investors. Specialist Lloyds insurer Beazley announced its intention to raise money on ORB and has appointed Lloyds and Numis to arrange the issue of about £50m of new bonds with a mooted coupon of between 5 and 5.5 per cent. Utility Severn Trent and inter-dealer broker ICAP - both FTSE 100 constituents - have also tapped ORB this summer, raising £200m between them.
Details of recently launched, or about to be launched bonds...
| COMPANIES: | CLS 5.5% Dec 2019 | Primary Health Properties 5.375% Jul 2019 | Intermediate Capital 6.25% Sep 2020 |
| PRICE: | 101p | 101p | 100p |
| YIELD: | 5.4% | 5.30% | 6.25% |
| COUPON: | Semi-annual | Semi-annual | Semi-annual |
| PIECE: | £100 | £100 | £100 |
| ISSUE SIZE: | £50m | £75m | Circa £50m |
| CREDIT RATING: | na | na | Fitch bbb- |
| ISIN: | XS0820711215 | XS0795445823 | XS0818634668 |
