3rd UPDATE: Terna Deal Sparks Renewed Demand For Peripheral Debt

Italian electricity grid operator Terna SpA (TRN.MI) Monday showed ongoing tensions in Greece have done little to curb appetite for peripheral corporate debt as demand for its five-year paper topped EUR5 billion.

Terna priced a EUR1.25 billion bond at 257 basis points over midswaps--127 basis points wider than a 10-year deal it priced last March, highlighting the premium Italian issuers are having to pay since the euro-zone debt crisis intensified last summer.

That compares with U.K. energy company BP PLC (BP), which priced a EUR1.25 billion four-year deal at 78 basis points over midswaps Monday. BP is rated A2 by Moody's Investors Service Inc. and A by Standard & Poor's Corp--both one notch above Terna.

Initial price guidance on the Terna transaction was in the area of 265 basis points over midswaps.

"Even with the volatility last week and the demonstrations in Greece, general market sentiment was good and Terna is a name that appeals to investors," said a syndicate banker working on the deal.

It is the third benchmark-size deal from an Italian non-financial this year, following new issues from oil and gas company Eni (ENI.MI) and road-toll operator Atlantia (ATL.MI).

Eni priced a EUR1 billion, eight-year bond at 220 basis points over midswaps on Jan. 27, while Atlantia priced a EUR1 billion, seven-year bond at 275 basis points over midswaps on Feb. 2.

"New issue premiums have dropped over the last couple of weeks, but there's probably a limit to how tight spreads can go given the background noise from Greece and the potential for volatility," said a syndicate banker away from the Terna deal, adding that the latest developments in Athens should buy the market some time and encourage more issuers to step forward.

Italian corporates have been unable to escape the ratings action on the country's sovereign debt, with Standard & Poor's Corp. cutting Terna to A- from A following the two-notch downgrade of Italy last month.

Moody's Investors Service Inc. also lowered Terna to A3 from A2 in October after it chopped Italy's credit rating by three notches.

Fitch Ratings confirmed Terna's A rating in November but cut its outlook to negative from stable. Fitch also downgraded Italy by two notches at the end of last month.

BNP Paribas SA, JPMorgan Chase & Co., Deutsche Bank AG, Mediobanca, Natixis and UniCredit SpA are the lead managers on the Terna deal.

-By Ben Edwards, Dow Jones Newswires; 44-20-7842-9287; [e-mail]