CONSUMER CYCLICALS: Fitch Affirms Sodexo at BBB+[S] Following Today's Pluxee Listing
- Sodexo's leading market position, large scale, and global operations contribute to its rating, alongside improved revenue visibility and resilience in profit margins post-spin-off.
- The stable outlook anticipates continued operating margin recovery and deleveraging consistent with the rating.
- The spin-off results in slightly slower revenue growth and a minor reduction in operating margin, offset by increased revenue visibility and stability.
- Rating headroom is tighter post-spin-off, with EBITDA net leverage just below their 2x sensitivity and modest post-dividend free cash flow margins below 1%, though Fitch see leverage declining to 1.7x by FY25.
- A disciplined financial policy, targeting reported EBITDA net leverage of 1x-2x, supports Sodexo's credit profile (reported continuing EBITDA net leverage was 2.4x at FY23).
- The company is compared favourably with peers like Compass Group PLC and Aramark for its diversified operations and strong market positions.
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EUROZONE ISSUANCE: Slovenia 10Y EUR Benchmark Mandate
Slovenia will launch a new 10Y EUR benchmark bond via syndication "in the near future, subject to market conditions", per multiple wire sources (BBG, DJ).
- Timing was not reported but in 2023 Slovenia issued a mandate for new EUR-denominated 10Y Sustainability benchmark and tap of 3.125% Aug-45 SLOREP on the first Tuesday of the year, and the transaction was conducted on the Wednesday.
- JLMs: Barclays, BNP Paribas, Deutsche Bank, Erste Group, Goldman Sachs Europe SE and Nova KBM.
- Slovenia's January 2024 investor programme is here
BONDS: Comfortably Cheaper As NY Filters In
The previously covered block sale in U.S. FV futures helps keep a lid on any rally in core global FI markets, with a brisk start to ’24 for corporate IG issuance and rally in oil prices pressuring the space throughout the early rounds of Tuesday trade.
- Outside of those drivers, a revaluation of the scope of the pre-NY rally/squeeze of favoured long positions provide potential inputs.
- Tsys see a fairly parallel 6.5-7.5bp move higher in yields, with the belly leading. TY futures moved to fresh session lows in recent trade.
- The German curve sees yields move 5.5-6.5bp higher, with a light bear steepening impulse observed. Bund futures last print -65, 30-35 ticks off lows.
- Slovenia has mandated banks for a benchmark-sized round of 10-Year supply.
- Eurozone peripherals widen vs. Bunds, with PGBs seeing the largest move there.
- Cash gilts are 9.0-14.5bp cheaper, with the long end coming under the most pressure. Gilt futures are -120, 15 ticks off lows.
US TSYS: Early SOFR/Treasury Option Roundup: SOFR Call Flys, Condors
FI option volumes gradually improving as 2024 get underway. SOFR trade leaning toward limited upside call flys and condors overnight, Treasury options mixed on light volume so far. Underlying futures weaker, current levels back near December 13 post-FOMC highs (TYH4 currently -21.5 at 112-07 vs. 112-05.5 low). Projected rate cuts for early 2024 recedes slightly: January 2024 cumulative -2.6bp at 5.302%, March 2024 chance of rate cut -78.5% vs. -84.3% last Friday w/ cumulative of -22.2bp at 5.106%, May 2024 still pricing in a full 25bp cut with cumulative -48.2bp at 4.847%, June'24 cumulative -73.3bp at 4.595%. Fed terminal at 5.33% in Jan'24.
- SOFR Options:
- 2,000 SFRU4 95.50/0QU4 96.50 put spds
- 1,500 SFRM4 95.25/95.50/95.87/96.12 call condors, ref 95.44
- 5,620 SFRU4 96.00/96.50/97.00 call flys ref 95.845
- 3,500 SFRM4 95.25/95.37/96.00/96.12 call condors ref 95.44
- 1,500 SFRM4 95.00/95.75/96.50 call flys ref 95.435
- 1,250 SFRH4 94.62/94.75/94.87 put flys, ref 94.98
- 1,250 SFRH4 94.68/94.75/94.81/94.87 call condors ref 94.975
- Treasury Options:
- 2,000 TYG4 112 puts, 46 ref 112-09/0.44%
- 2,800 TYH4 115 calls, 28 ref 112-11.5/0.22%
