Vonovia’s M&A Bid Spurs Year’s Biggest Euro Corporate Bond Deal

(Bloomberg) -- Vonovia SE is selling the biggest euro corporate bond deal for almost a year, as it bolsters its finances to swallow a competitor.

The German landlord will raise 5 billion euros ($5.9 billion) through Thursday’s multi-part sale, with strong demand cutting pricing on the deal, according to a person familiar with the matter, who asked not to be identified. That’s the biggest transaction in the currency since a 6.25 billion-euro six-part deal from Medtronic Plc last September. Part of the proceeds will refinance a bridging loan facility used to increase Vonovia’s stake in target Deutsche Wohnen SE earlier this year.

“This is our last transaction of the year because once the Deutsche Wohnen offer closes, end-October/ beginning of November, we will start with the capital increase for the acquisition,” Olaf Weber, the firm’s head of finance and treasury, said in an interview. “Markets are very open at the moment.”

The 19 billion-euro takeover bid has the power to transform Germany’s housing market, as it would create a landlord giant with more than 500,000 residential units. Deutsche Wohnen investors can tender their holdings for 53 euros per share, which is the “best and final” offer, Vonovia said Monday.

Vonovia’s sale, four times subscribed by investors, is helping kickstart Europe’s corporate debt market as issuance climbs this week following the traditional summer slowdown. Borrowing costs for high-grade companies fell to a record in early August, buoyed by continued support from the European Central Bank’s asset-purchase program.

Marketing for the two-year bond started at about 60 basis points over mid-swaps, and was slashed to 25 basis points at final pricing levels, according to the person familiar with the deal, who declined to be identified as the talks are private. The firm raised 4 billion euros across five tranches in June, also to support the Deutsche Wohnen bid, in a transaction that was also almost four times subscribed by investors. 

FINAL TERMS: Vonovia EU5b Debt Offering in 5 Parts

A number of risks are keeping the company’s credit spreads wider than they would be otherwise, according to David Shnaps, a senior analyst at CreditSights. Those include the material level of bond sales, as well as the successful execution of disposals and a referendum on property nationalization in Germany.

“Our base case is that these hurdles can be navigated,” he said.

The banks involved in the deal, BofA Securities, Societe Generale SA and Morgan Stanley, declined to comment.

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