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Air France puts bond plans on hold as Deutsche woes hit market

* Air France reconsiders bond timing

* Weakness creeps in on Deutsche Bank news

By Laura Benitez

LONDON, Sept 30 (IFR) - Air France-KLM steered clear of the European bond market on Friday, becoming the latest corporate issuer to put funding plans on hold as investors grapple with the wider implications of Deutsche Bank's turmoil.

The unrated Franco-Dutch airline held a global investor call on Thursday to test appetite for a six or seven-year euro-denominated senior unsecured benchmark deal.

It was also considering a 10-year fixed-rate Reg S senior unsecured tranche by reverse enquiry, according to a note sent out by the lead banks on Thursday.

Unless specified otherwise, issuers typically begin marketing an expected bond shortly after concluding investor calls or meetings.

However, reports that investors were reducing their financial exposure to Germany's largest lender shook the market on Friday and Air France-KLM did not go ahead with its trade.

"The market is not great with the Deutsche Bank news weighing on sentiment today and as an unrated credit with a finite investor base the borrower has to be cautious," a lead on the upcoming Air France deal said.

"It's a German holiday on Monday so timing will most likely be the middle of next week, subject to the market, but we will see."

Earlier in the week, German airline Deutsche Lufthansa walked away from a seven-year 500m deal after investors showed little interest for the price it was showing.

HSBC and Societe Generale are global coordinators and joint bookrunners and Citigroup, CM-CIC, Commerzbank and Goldman Sachs are joint bookrunners to arrange the deal.

SHAKY MARKET

While there has been a delay in Air France-KLM's plans, that is not to say that the market is shut. Investment-grade corporate issuance reached 7.6bn-equivalent this week, although cracks began to appear by the close of the week.

Subordinated debt typically bares the brunt of market volatility, and true to form this week, freshly priced hybrid paper from EnBW and Total weakened in the secondary market on Friday.

Total's 2.708% 1bn NC6.6-year hybrid deal fell to a cash bid of 99.3 after pricing on Thursday at 99.997, according to Tradeweb prices on Friday.

"Total rammed pricing in way too aggressively on Thursday, and timed it to perfection by coming just after the OPEC meeting," one investor said. "It wasn't a surprise to us that it weakened on the break, and luckily we withdrew our order at the final hour."

Similarly, EnBW's 3.375% 725m 60.5-year hybrid also fell slightly to a cash bid of 99.039 by Friday, after pricing on Wednesday at 99.399.

The iBoxx non-financials corporate index dropped nearly 10bp by the end of the week to swaps plus 59bp, from highs of 68bp on Monday. (Reporting By Laura Benitez)

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