National Grid Gas takes sterling market by storm in run-up to CBPS

By Laura Benitez

LONDON, Sept 13 (IFR) - National Grid Gas Finance is poised to sell the biggest ever corporate sterling bond on Tuesday, a trade that could not have been better timed with the Bank of England announcing the previous day that four of the issuer's bonds were eligible for its purchase programme.

The UK-headquartered company met investors in Europe and the UK last week, and on Tuesday started marketing a bumper five-tranche deal ranging across the curve from five to 30-years.

The deal is expected to total more than £2.5bn - eclipsing Enel (LSE: 0NRE.L - news) 's £2.25bn dual-tranche outing from late 2009 as the largest sterling issue in the corporate sector.

"The deal is expected to be well received, as many will not want to be underweight. We'll be placing a sizeable order," one investor said.

The order book was over £6bn at the last update.

The BoE will buy £10bn of corporate paper, initially through thrice-weekly auctions starting September 27.

The programme, which encompasses debt from companies that make a material contribution to UK economic activity, will last for 18 months.

Utilities had been expected to be among the biggest winners, and indeed electricity and gas companies make up over a third of the eligible list by value.

Spreads in the sector have rallied hard in the wake of the BoE (Shenzhen: 200725.SZ - news) announcing the purchase programme on August 4. A National Grid Gas March 2020 bond, for example, has tightened around 50bp to Gilts plus 4bp, according to Thomson Reuters (Dusseldorf: TOC.DU - news) data.

The five-year tranche is being marketed at Gilts 90bp-95bp, having first been shown at IPTs of plus 100bp-105bp. Guidance on the 12-year is Gilts plus 105bp-110bp, while the 22-year is at 110bp-115bp and the 30-year at a final 120bp over.

Marketing for those began at Gilts plus 115bp area, plus 120bp-125bp and plus 125bp-130bp respectively.

The company had also planned to sell a £100m-plus 25-year linker at plus 145bp-150bp, but dropped that and instead chose to upsize the nominal tranches.

CLEANING UP

The transaction comes at a time of change for the company. National Grid plc (LSE: NG.L - news) announced in November 2015 that it was intending to sell a majority of its shares in its gas distribution business.

Ofgem received notification in June this year that National Grid plc was asking permission to transfer its gas distribution assets to a new subsidiary called National Grid Gas Distribution Limited. Ofgem has yet to set out what the next steps of the sale will entail.

Investors said the company was offering a slight concession at initial price thoughts due to the sale, which in turn changes the credit metrics and future credit ratings of the deal.

National Grid Gas Finance is rated A3/A-/A, although all the ratings are on review for downgrade or on negative watch.

"They are trying to clean up their structure before the sale, but the problem for investors here is that the rating will change on the sale and fall below a single A due to the increased leverage and uncertainty," the investor said.

"With (Other OTC: WWTH - news) that in mind, the pricing is hardly anything to get excited by."

After the sale, National Grid Gas Finance plc will be guaranteed by the new entity instead of National Grid Gas plc.

Last week, National Grid launched a consent solicitation on 10 of its sterling bonds, which will expire on Thursday.

The new issues are expected to price later today via lead banks Barclays (LSE: BARC.L - news) , BNP Paribas (LSE: 0HB5.L - news) , Bank of America Merrill Lynch, HSBC and Morgan Stanley (Xetra: 885836 - news) .

A euro deal from National Grid Gas plc is expected to follow on Wednesday. (Reporting By Laura Benitez, editing by Helene Durand, Julian Baker)