Royal Mail eyes euros or sterling

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Royal Mail is considering either a euro or sterling option for its debut bond, according to an investor that has attended meetings with the company.

The tenor of the bond, if it chooses a sterling option, will be between 10 and 20 years, while a euro bond will be around 10 years.

Royal Mail finishes its meetings in Europe today and has met some 70 accounts so far, according to one of the lead banks. The roadshow ends on Thursday with an investor call at 13.30.

Some of the comparables for the euro deal are BRITEL (Baa2/BBB) 06/19s, MS+43bp, DPWGR (Baa1/BBB+) 10/23s, MS+63; and MAERSK (Baa1/BBB+) 08/19, MS+58bp.

For the sterling option the comparables include BRITEL 12/28s, G+130, MAERSK 04/25s, G+130, and MAGAIR (Baa1/BBB+) 04/24s, G+135bp, according to one of the leads.

The deal is expected to launch on July 22, after nearly two weeks of marketing efforts.

According to investors attending the roadshow, the meetings are going well, with over 40 investors present at yesterday’s lunch.

One investor said that there has been a lot of interest in what will ultimately be a relatively small to medium sized bond, although it is still too early to tell how big the demand will be.

He added that a dual tranche option has been ruled out over the course of the roadshow due to negative investor feedback.

“It’s all still very much in the air. It will depend on investor feedback and where they can price a euro versus sterling deal. If they brought a dual-tranche, the size of both deals would be too small and liquidity in the secondary market would be poor,” the investor said.

He added the timing of Royal Mail’s deal is due to it wanting to refinance a £300m term loan, due in September 2016, before it turns into short term debt. In addition, the company is seeking to take advantage of good funding conditions, the investor said.

Royal Mail has chosen an unsecured bond as its preferred choice of debt financing due to it offering more flexibility, according to James Vokins, credit portfolio manager at Aviva Investors.

The postal service has a very extensive and valuable property portfolio but it did not want to tie those assets up through a secured deal, Vokins added.

BNP Paribas, JP Morgan Cazenove, RBC and RBS are the lead managers on the transaction.