Commercial Real Estate and Simon Property Group and Real Estate Investment Trust and Real Estate & Retail

Simon debuts bonds in Europe as discount to U.S. widens

September 25, 2013

Simon Property Group Inc., the largest U.S. mall owner, is debuting euro-denominated bonds as the yield discount to U.S. dollar notes approaches the widest in more than 4-1/2 years.

Simon is selling 750 million euros ($1 billion) of seven-year securities to yield 75 basis points more than swaps, according to a person familiar with the matter. The average yield difference between investment-grade company bonds in euros and comparable dollar notes widened seven basis points in the past week, to 1.22 percent, near the biggest discount since 2008, Bank of America Merrill Lynch indexes show.

While Federal Reserve Chairman Ben S. Bernanke holds off from scaling back stimulus in the U.S., European Central Bank policy makers signaled this week they may provide additional loans to banks to keep borrowing costs low, even amid signs the euro-area economy is strengthening. A report Wednesday shows consumer confidence in Germany improved more than economists predicted.

“The ECB still runs an accommodative monetary policy given the economic challenges the euro zone still faces,” said Rik Den Hartog, a portfolio manager at Kempen Capital Management in Amsterdam. “For Simon, it’s attractive to sell bonds in euros, since yields are at low levels and it offers an opportunity to match their funding better to their European exposure.”

Simon is selling the securities through its Simon Property Group LP unit. Les Morris, a spokesman for the Indianapolis-based company, didn’t immediately respond to an e-mail and phone call seeking comment outside office hours.

Investors demand an average 2.1 percent to hold euro-denominated high-grade notes compared with 3.3 percent for dollar securities, Bank of America Merrill Lynch index data show. The yield premium over swaps for European company debt fell 18 basis points this quarter to 98 basis points, according to the data.

Also in credit markets today, Next Plc, Britain’s second- largest clothing retailer, is selling 250 million pounds ($400 million) of 13-year notes to yield about 150 basis points more than United Kingdom government debt, according to a person familiar with the deal. It’s the Leicester, England-based company’s first bond sale in more than two years, Bloomberg data show.

Daimler AG, the world’s third-biggest luxury automaker, is marketing benchmark-sized bonds in euros maturing April 2020 to yield 55 basis points more than swaps. The Stuttgart, Germany-based carmaker is also issuing at least 300 million euros of three-year floating-rate notes to yield 30 basis points more than the three-month euro interbank offered rate.

In the high-yield market, Italian lender Veneto Banca SCPA is selling euro-denominated notes due January 2016 to yield 4.375 percent to 4.5 percent. The Montebelluna-based bank is rated BB by Standard & Poor’s, two levels below investment grade.

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