There's excess liquidity in the market? Corporate issuance is scarce and companies have the market under their thumb? Network Rail's undersubscribed bond issue last week warned corporates against any such broad assumptions.
UK rail operator Network Rail decided to capitalise on market conditions and the favourable response to its three-tranche, £2.25 billion bond three weeks ago to issue a further $1 billion before the year was out.
But the deal was undersubscribed, leaving lead managers Dresdner Kleinwort Wasserstein, HSBC and UBS with a 50% subscription on day one and 80% at pricing on Wednesday.
The culprit was volatility in the dollar markets, with announcements during the week that Asian banks were considering cutting their reserves of dollars in favour of local currencies and the euro.
The pricing was also aggressive, with the coupon of 15bp through Libor several basis points less than Network Rail's previous, sterling bond. But this was not unusual for recent dollar issues and not an overly ambitious price given recent, record appetite for corporate debt in the US.
The deal seems to demonstrate that any favourable market conditions can be upset by bouts of volatility, particularly in the currency markets.