E.ON, EdF Lead $22 Billion of Bond Sales in Europe

By Shelley Smith

Nov. 21 (Bloomberg) -- Electricite de France SA, Europe's biggest power generator, and German utility E.ON AG, led 17.9 billion euros ($22 billion) of bond sales, close to a three-month high, as investors snapped up record yields over government debt.

Sales were 47 percent more than the weekly average of 12.2 billion euros. Electricite de France SA, raised 2 billion euros by selling four-year bonds, while German utility E.ON AG got 1 billion euros by issuing two-year debt, according to data compiled by Bloomberg.

``The new issue market is opening up during a time of intense volatility, which tells us investors are pricing risk appropriately and are being richly rewarded,'' said Mehernosh Engineer, a credit strategist at BNP Paribas SA in London. Chief executives are ``finally recognizing reality and are willing to pay the recessionary premium,'' he said.

Investors are demanding the highest yield spreads to buy company bonds on concern the worst financial crisis since the Great Depression will make it harder for borrowers to repay debt. The risk of protecting investment-grade corporate bonds from default surged close to a record as the prospect that U.S. automakers may fail fueled concern of a deeper global recession.

Bond buyers increased the extra yield they charge investment-grade companies to sell debt to 412 basis points over government debt, the highest level since Merrill Lynch & Co. started collating the daily data in 1999. The gap is four times last year's level, Merrill's European Investment-Grade Corporate Bond Index shows. A basis point is 0.01 percentage point.

Credit-default swaps on the Markit iTraxx Europe index of 125 investment-grade companies traded as high as 193 basis points today, JPMorgan prices show. It reached a record 195 on Oct. 27.

Car Trouble

General Motors Corp., Ford Motor Co. and Chrysler LLC executives left Washington empty handed this week after two days of pleading with lawmakers for a $25 billion bailout. The Big Three must re-submit their case for aid next month. GM Chief Executive Officer Rick Wagoner said Nov. 19 that allowing U.S. automakers to fail would trigger a ``catastrophic collapse'' of the economy.

The European Union is crafting a 130 billion-euro coordinated stimulus package for the 27-nation economy after the region was pushed into its first recession since the euro's start almost a decade ago. European Commission President Jose Barroso said yesterday the EU executive will announce a plan next week.

E.ON, EdF

E.ON, based in Dusseldorf, sold 1 billion euros of two-year bonds priced to yield 150 basis points more than the benchmark mid-swap rate. That compares with 45 basis points the utility agreed on 750 million euros of three-year bonds issued in August, Bloomberg data show.

Paris-based EdF sold 2 billion euros of five-year bonds priced to yield 299.5 basis points more than similar-maturity government debt. The power company raised 1.2 billion euros of 12-year bonds in May at a yield of 117.2 basis points, Bloomberg data show.

``There's a worry that there was too much issuance too soon,'' said Georg Grodzki, London-based head of credit research at Legal & General Group Plc, the U.K.'s third-largest insurer which manages more than 110 billion pounds ($163 billion) of fixed-income assets. ``We may have reached the limit of what the market can take.''

U.K., Ireland Banks

Banks in the U.K. and Ireland raised a total 5 billion euros this week under the governments' pledges to guarantee bank debt to shore up confidence in the financial system.

Bank of Scotland Plc, a unit of HBOS Plc, sold an extra 1.2 billion pounds of its government-guaranteed bonds maturing in 2011 at a yield of 108 basis points more than U.K. gilts.

RBS increased its sale of 3.75 percent 2011 bonds by 1 billion euros to 3 billion euros at a spread of 123.5 basis points. The Edinburgh-based lender boosted its 4.125 percent 2011 notes by 600 million pounds to 2 billion pounds, yielding 103.8 basis points more than government debt.

Allied Irish Banks Plc, the nation's biggest lender by market value, became the first issuer in Ireland to sell government-guaranteed bonds. The Dublin-based bank raised 2 billion euros from two-year bonds yielding 161.7 basis points over government benchmarks, Bloomberg data show.

In other sales, Vodafone Group Plc raised 450 million pounds of 10-year bonds at yield spread of 400 basis points over government notes. Deutsche Telekom, Europe's largest phone company, raised 250 million pounds of 20-year bonds yielding 400 basis points more than U.K government debt.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase indicates deterioration in the perception of credit quality.

To contact the reporters on this story: Shelley Smith in London at ssmith118@bloomberg.net: