“For a large multinational corporate, FX volatility in the current environment could have a massive impact on financial performance,” says Mark Bamford, global head of DCM syndicate at Barclays in New York. “Whether corporates use outright capital markets financings or swaps to hedge assets and revenues, this is now the most important issue to get right, right now.”
A number of US multinational took this on board very swiftly after the ECB’s PSPP announcement at the beginning of the year and the ‘reverse yankee’ phenomenon of the last few months took hold. The prospect of historically cheap rates in Europe versus impending rate rises at home saw a slew of US borrowers beat a path to Europe’s door.
“There is a general fear of what the euro going from 1.30 to par means,” warns Bamford. But, he adds: “You have much more flexibility if you get your hedging right.”
By early March US non-financial corporates had issued €22.9 billion of euro-denominated bonds, taking advantage of yields that were 1.5% to 1.75% cheaper than they could get in US dollars. The poster child for the trend was double-A rated Coca Cola’s €8.5 billion drive-by on February 26, which was the soft drinks manufacturer’s biggest-ever bond and the second-largest investment-grade bond in European currencies after Swiss pharmaceuticals firm Hoffman-LaRoche’s €11.16
