GERMAN RETAILER METRO was all set to launch its first European benchmark bond at the end of January, hoping to take advantage of improving conditions in the European corporate bond market since the beginning of the year. For Metro, the world's fifth-largest retailer, bonds and euro medium-term notes had previously made up less than a quarter of its funding and its outstanding issues were much smaller, largely domestic bonds that are illiquid. The rest of its funding was split between bilateral bank lines, syndicated loans and the money markets.
Metro has to refinance a Dm1.5 billion ($829 million) convertible bond maturing in 2013. It expects investors to put back to it in July this year, so banks had been pitching the idea of a benchmark bond to open up its appeal to a much broader range of investors. Duly, the company did a non-deal roadshow at the end of last year and then felt confident enough to go for it.
However, as Metro was preparing to launch its deal, conditions in the European retail sector were deteriorating. The bidding war for UK supermarket chain Safeway led to high-profile bond issuers from the supermarket sector, such as J Sainsbury and Tesco, being put on review for ratings downgrades, as fear mounted that the eventual victor would over-leverage to fund the deal.