Saturday, 22 September 2018

FIG: Orderbooks swell for senior paper (free content)

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  • Intesa Sanpaolo

The large appetite for senior paper was evidenced for a second day running by a bumper book for Intesa Sanpaolo’s seven-year euro deal.

The Italian bank, rated Baa2/BBB-/BBB+, began marketing at swaps plus 85/90bp. This tightened to 75/80bp over as IoIs reached €4bn, before a final spread of 75bp over was set on orders of around €5.6bn for a €1.5bn deal.

“There has been a real drought of senior supply – after a busy start to the year, it then tailed off,” a banker said.

“Investors have been complaining about secondary liquidity as there has been nothing on the offer side - only on the bid.”

The lack of recent primary deals forced investors to turn to the secondary market to find any value. As a result, paper where investors saw some residual value - such as National Australia Bank’s January 2022s – has tightened considerably.

That deal priced at swaps plus 42bp in early January and has since tightened to 25bp over, according to Tradeweb prices.

As value has been sucked out of the secondary market, the demand for primary deals has rocketed. Nationwide drew €4.8bn of interest for its 10-year trade yesterday for example.

This demand has shifted pricing power back towards issuers, with new issue premiums falling as a result.

“Towards the beginning of the year, many investors were demanding 10-12bp of premium, but they are now in the low single digits,” the banker said.

Bankers put the premium on the Intesa deal around 4-5bp.

Like the Banco Popolare covered deal yesterday, Intesa also benefited from low peripheral supply. Only 10% of senior supply year-to-date has come from those regions, according to one banker’s calculations.

“A high level of redemptions across Spanish and Italian paper has also worked in their favour,” he added.

Banca IMI, BNP Paribas, HSBC, Morgan Stanley and UBS were leads on the Intesa deal.

Arion Banki to revive senior deal

Arion Banki is taking steps towards reviving the senior deal it postponed last April, buoyed by increased risk appetite and an improving backdrop for the country’s banks.

The Icelandic lender looked at the market last spring, but the pricing on offer was more than the issuer wanted to pay and plans were delayed further by deteriorating market conditions.

However, the tone has improved markedly, helped by the European Central Bank (ECB) announcement in January that it would start buying €60bn of government bonds monthly until at least September 2016, driving yields lower and spreads tighter across asset classes.

“The market is more constructive in a broader context than it has been for a long time, and Iceland has made good progress in the last 12 months around topics such as the capital controls. This has driven in spreads for the sovereign significantly, and the sovereign itself was well received when it was active in the market,” said Tommy Paxeus, head of Nordic FIG DCM at Deutsche Bank.  

According to Eikon, Iceland’s 2.5% July 2020 bond has tightened by almost 60bp since the end of last year to a Z-spread of 131.86bp.

The transaction from the issuer formerly known as Kaupthing Bank would be its first wholesale deal in a major currency in more than six years.

Islandsbanki last May priced a €100m two-year issue that was Iceland’s first euro-denominated bank bond since the country’s financial collapse.

“This is an exercise undertaken by Arion in establishing Icelandic banks as regular issuers,” Paxeus added.

The bank is to host an investor call on Wednesday, February 25, regarding its annual results, due to be released on Tuesday.

This will be succeeded by a series of investor meetings in Europe on Thursday and Friday, via Citigroup, Deutsche Bank and Nomura, ahead of the possible euro-denominated trade.   

Deutsche’s Paxeus said that the roadshow would be crucial to establishing size, maturity and pricing.

“The price should be lower now than ever since the start of the crisis, as both the Icelandic banks and the sovereign are in a good position. Arion has a strong balance sheet, stable business model and is extremely well capitalised.”

In a debt investor presentation released in the third quarter of 2014, Arion Banki said it was well prepared for the lifting of capital controls and had a 21.1% Core Tier 1 ratio.

Arion Banki is rated BB+ by S&P with a positive outlook. It is 87% owned by its creditors and 13% by the Icelandic government.

Covered market back in full swing

The covered bond market is back in full swing with two more issuers bringing trades on Wednesday morning.

Appetite for covered paper remains high despite spreads squeezing to new lows, with bankers citing little price sensitivity as execution progressed.

“I am amazed by the order books for both, especially Danske, at these levels,” said a banker.

Danske Bank began marketing a long five-year euro benchmark at mid-swaps plus low single digits. Guidance followed at minus 1bp area as IoIs passed €1.5bn, then final terms at minus 2bp for a €1bn deal.

This is only the third time Danske has issued a euro bond from its Cover Pool C, one of the few mixed pools used by issuers (although common in Denmark and Germany).

43% of the pool is backed by housing and agricultural properties, alongside other horticultural, industrial and retail assets. Danske tends to use its Cover Pool I, backed by residential assets, for its euro-denominated deals.

The bonds largely trade in line. The C-pool August 2019s, for example, were bid at 6.5bp through mid-swaps this morning, while the I-pool November 2019s were bid at 6bp through. Both pools are rated AAA by S&P and Fitch.

A lead said the €1bn size was the issuer’s maximum target amount.

“There was minimal price sensitivity, albeit the bigger asset managers are reducing their order sizes. It was a good orderbook for a €1bn deal, but not excessive.”

The book reflects the lack of familiarity with the mixed cover pool among some investors in certain justifications such as the UK, a lead said.

Danske’s bond is eligible for LCR portfolios, but not the ECB’s purchase programme.

Credit Agricole, Danske Bank, Natixis, RBC CM, UBS and UniCredit were lead managers.

Meanwhile, frequent issuer Helaba was back for the second time this year, with a five-year Oeffentlicher Pfandbrief via Barclays, CA CIB, Credit Suisse, Deutsche Bank (B&D), and Helaba. IPTs came at mid-swaps minus low/mid teens and quickly tightened to minus 15bp area as IoIs reached €1.5bn.

It fixed at minus 17bp for a €1bn size, just 1bp over where NordLB priced a four-year earlier in February.

“The covered market been relatively undersupplied in past weeks beyond a few French and German trades. Investors are waiting with high cash piles,” said a lead.

Further action

NordLB is rounding off the marketing process for its debut benchmark Lettres de Gage (LDG). A lead said he thought it would most likely be next week’s business.

“I’d be very surprised to see this one rushed through this week, particularly as this format has not been around for a while,” he said.

The issuer is hoping to price the deal somewhere between its recent €500m four-year public sector deal, which priced at 18bp through swaps, and German aircraft covereds, a source said.

Meanwhile, LBBW is poised to sell a US$500m no-grow three-year covered after Westpac priced a US$1.5bn five-year covered deal yesterday.

Intermediate Capital Group mandates Canaccord for roadshow

Intermediate Capital Group (BBB-/BBB-) has mandated Canaccord Genuity Limited to arrange a series of meetings with fixed income investors in the UK and Channel Islands.

One-on-one meetings are available from February 26. A London group meeting takes place on March 3.

A sterling issue may follow, subject to market conditions.

A possible semi-annual coupon range of 4.75%-5.00% and tenor of eight to 10 years has been indicated.

ICG structures and provides mezzanine finance, leveraged credit and minority equity, managing €14.9 billion of assets from third party investors and its own balance sheet.

CBA to sell CNY subordinated notes

Commonwealth Bank of Australia has mandated CBA and HSBC as joint global coordinators to arrange a series of fixed income investor meetings in Hong Kong and Singapore during the week commencing March 2.

An offering of Reg S Basel III-compliant CNY-denominated subordinated notes may follow, subject to market conditions.

The notes are expected to be rated A3 by Moody’s, BBB+ by S&P and A+ by Fitch.

BTMU hires four for US$ global fixed, floating bonds

Bank of Tokyo-Mitsubishi UFJ has hired Morgan Stanley (B&D), MUFG, Bank of America Merrill Lynch and Citigroup as bookrunners for an offering of fixed- and floating-rate notes in US dollars.

The offering comprises a three-year floater and/or a three-year fixed tranche, as well as a five-year fixed tranche.

Books for the 144A/Reg S trade are open and pricing is expected in New York hours. The notes are expected to be rated A1/A+.

US FIG market looking strong

On another very strong day for the US high-grade market, TCF National Bank announced a US$125m 10-year subordinated bank note.

The active bookrunners included JP Morgan and Morgan Stanley.

IPTs came in the high 200s and guidance followed at Treasuries plus 275bp area (+/-5bp). The US$150m deal (upsized from US$125m) launched at 270bp over.

TCF was seen paying about 25bp-30bp in liquidity premium because the deal was not big enough to be index eligible.

Apollo Investment Corp, an affiliate of Apollo Global Management (APO), debuted in the senior unsecured market with a US$350m 10-year offering.

The active bookrunners included Barclays and Citigroup, with BMO, Credit Suisse, Deutsche Bank, JP Morgan, STRH and UBS as the passive bookrunners.

IPTs came at 5.375%-5.50% and it launched at 5.375% on a book of US$425m.

Westpac issued a US$1.5bn five-year covered bond at swaps plus 41bp, 3bp tighter than the swaps plus 44bp pricing on Royal Bank of Canada’s US$2bn covered that priced in late January.

IPTs came at mid-swaps plus mid-40s and guidance followed at plus 41bp-42bp. Books were around US$2.3bn, with barely any drops.

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