Split-Rated CSN Squeezes Buyside

Proving that you don’t have to be high grade to be aggressive on price, split-rated CSN has priced a $750m 10-year bond through guidance. The Brazilian steel and mining company cashed in on scarcity value and continued investor inflows to price at par to yield 6.875%, tight to 7.000%-7.250% initial talk. “I was shocked that the deal traded so well after being so tightly priced,” says an investor who participated. Despite the lack of pickup, the CSN order book was heard north of $4bn and the 2019 traded up 1-2 points in the gray market Monday. The New York-based buysider adds that the transaction was so tight relative to the company’s other high dollar-price issues that the concession was negligible. “[Benjamin] Steinbruck’s doing the usual, he’s driving pricing really tight,” adds the portfolio manager, referring to the CSN CEO. “We think CSN is a great company but the pricing ended up being a little too tight for us,” notes Edgardo Sternberg, portfolio manager at Loomis Sayles in charge of $6.8bn in EM bonds. “As funds have inflows, people need to deploy money,” he adds. CSN’s Monday issue, which came at 346bp over the 10-year UST, is the company’s first since 2005, which allowed it to capitalize on scarcity value. Itau and Morgan Stanley led the Ba1/BB+/BBB offer. The trade extends a run of increasingly thin concessions for investors, though it is the first sub-investment grade name to really test buyers. “The new issue concession that we saw earlier in the year has been disappearing,” notes Sternberg. Last week, Vale placed $1bn in 10-year notes to yield 5.727%, or UST+250bp, which was seen as aggressive. The deal was 8x subscribed. Higher rated Brazilian Grupo Votorantim, which kicks off a roadshow today for a new bond, will look beat CSN’s spread.