* Hybrids coming back into favour
* Investors desperate for yield
* More names adding to pipeline
By Laura Benitez
LONDON, Sept 29 (IFR) - After spending much of 2016 in the doldrums, corporate hybrid issuance is staging a revival on the back of investors' search for yield, with Total announcing on Thursday that it was aiming to raise up to 2.5bn in the format.
The oil and gas major's capped 1bn perpetual NC6.6 and expected 1.25bn-1.5bn NC10 deals have attracted over 7.5bn of demand. EnBW lured around 2bn of interest for a 725m 60.5NC5.5 issue on Wednesday.
"It seems the hunt for yield has resumed with a vengeance," said Alex Temple, portfolio manager at ECM, part of Wells Fargo Asset Management, which manages US$480bn.
Hybrids bore the brunt of market volatility this year, compounding concerns around an asset class that had been badly knocked after S&P changed its equity criteria in late 2015.
Year-to-date issuance is a mere 4.2bn versus more than 28bn in 2015. However, this week's spurt will almost double that number.
Total jumped into the market just hours after OPEC agreed a preliminary deal to reduce oil production for the first time in eight years, sending crude prices surging.
"Total is a good name but the timing is a bit of a concern," another investor said.
"Some might see the OPEC announcement as supportive, but others might think OPEC are setting everyone up for disappointment given lack of clarity over how they will achieve their cuts."
Total started marketing the NC6.6 tranche at 305bp area over mid-swaps, which was then tightened to 285bp area.
Guidance on the NC10 is 325bp area over swaps, tighter than the 340bp area IPTs.
The bonds are expected to be rated A2/A-. The deal is Total's second in the format this year following a 1.75bn non-call six trade sold in May.
The sector's revival comes as appetite for risk has grown in recent months, helped by European Central Bank purchases that have pushed more corporate bonds into negative-yielding territory.
Furthermore the yield differential between senior and subordinated debt - a key metric used by companies in considering whether to issue hybrids - has narrowed to the 240-260bp range from around 500bp at the start of the year.
More companies are rumoured to have mandated deals, according to several sources, indicating that volumes could soon increase.
Hybrids receive equity credit at rating agencies and have been labelled as the go-to product for bolstering balance sheets and funding M&A while defending credit scores.
Those anticipated to issue paper include Bayer, which two weeks ago said it expects to sell a mix of senior and hybrid debt to help finance its US$66bn takeover of US seed company Monsanto.
Lanxess is another near-term candidate, having announced plans to sell up to 750m to finance the acquisition of Chemtura Corp.
"Total is proving how much of an attractive space the hybrid market is for companies wanting to reduce their overall weighted average cost of capital," said Julian Marks, portfolio manager for Neuberger Berman's Corporate Hybrid Fund.
Total's deal will price later today via Deutsche Bank, HSBC (B&D), JP Morgan and Morgan Stanley. (Reporting By Laura Benitez, editing by Helene Durand, Julian Baker)