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Sunday, 17 December 2017

FIG: Repricing revives covered primary

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  • ABN AMRO bank head office

Real money has been lured back into covered bonds primary by the market’s recent re-pricing, with five new deals surfacing on Tuesday bringing some of the strongest trades seen in weeks.

Demand was particularly strong for the Swedbank five-year and ABN AMRO’s 15-year deal, with books passing €1.4bn and €1.8bn respectively, by mid-morning.

In the case of Swedbank, the success is partly down to the new-found value investors see in some non-eurozone paper.

“We’ve seen a cheapening for anyone without ECB support, where investors are being a lot more defensive - if you buy, you can’t escape as you can’t sell to the ECB,” said one syndicate banker.

The spread fixed at plus 7bp following IPTs of 10bp area and guidance of plus 8bp area via Danske, Deutsche, SG, Swedbank and UBS. Swedish peer SEB priced a €1bn seven-year at 3bp through swaps as recently as June, but that has widened to around 6.5bp, according to Tradeweb.

“There is value to be recognised in this type of spread and we’re seeing an uptick in real money accounts participating, as we saw with SR-Bolikredditt yesterday,” said a lead on the Swedbank deal. Asset managers took 31% of SR-Bolikredditt’s deal, which priced at swaps plus 12bp.

Relative value was the key driver for ABN’s trade, an issuer that tends to issue at the longer end. It launched a €1.5bn deal at swaps plus 20bp, in line with IPTs of plus 20bp area.

ABN AMRO, BNP Paribas, Credit Suisse, DB and LBBW are running the trade.

“This is nothing to do with new issue premium - the bottom line is it’s a relatively attractive spread. It’s coming 55/60bp back of the Bund and 30/35bp back of the Dutch government curve,” said a lead.

The reception of recent 10-year trades has been underwhelming but there is a 37bp difference between 10 and 15-year swaps rates, according to Tradeweb, prompting the issuer to go longer.

More measured

A five-year trade from Bawag, in some respects a more challenging deal, also appeared to be getting some traction with investors.

Bawag is the first Austrian covered since country peer Hypo Noe failed to fully sell a €300m five-year earlier this month at swaps plus 15bp.

Erste and UniCredit Bank Austria priced respective five and seven-years the same week at plus 3bp and plus 5bp, now around 1-2bp wider on the bid, according to Tradeweb. They were the first deals after the Heta moratorium locked Austrian banks out of the market for six months.

But at the first update leads Barclays, DZ, ING, Societe Generale and UniCredit had tightened IPTs of swaps plus 15bp area to plus 13bp area with books over €600m.  

“It’s one of the smaller names which is why it’s paying more, but the credit quality is very good,” said a lead.

Bankers predicted that Westpac New Zealand could also be a tougher sell given the bonds are not eligible for the ECB’s purchasing programme or as repo collateral. The issuer had met investors earlier this month.

Guidance came in line with IPTs at swaps plus 22bp area and leads BNP Paribas, UBS and Westpac expected the deal to price in a €500m size. Books had passed €500m at the last update.

However, Caja Rural de Castilla-La Mancha seemed to be struggling to place its inaugural trade, the only one of day not carrying a AAA rating.

It opened books on an inaugural €500m six-year, rated Aa2, via Banco Cooperativo, HSBC, JP Morgan, Natixis and Santander at swaps plus mid 40s. Orders were approaching €500m when leads fixed the spread at swaps plus 45bp, for a €500m deal. 

HSBC, ASR prevail as clouds gather

The subordinated FIG sector was immune to broader weakness in the markets on Tuesday as new trades from HSBC and ASR Nederland chalked up robust demand.

HSBC priced its first deal in the single currency all year, a €1bn perpetual non-call eight year Additional Tier 1 bond at 6%, the tight end of IPTs of 6.125% area.

Dutch insurer ASR Nederland bagged a 30-year non-call 10-year Tier 2 bond at swaps plus 420bp, 5bp inside IPTs, via BNP Paribas, Deutsche Bank, HSBC, Rabobank and UBS.

Both deals faced a swiftly deteriorating market that saw the FinSub index widen by 8.75bp by Tuesday afternoon.

“I’m surprised at how quickly the broader market has deteriorated. The deterioration in equity and credit indices is not really based on anything, so you’re trying to navigate invisible obstacles,” said a lead on ASR’s trade. 

The AT1 market was trading down 0.25 to 0.5 points, with ABN’s new 5.75% perp non-call five dropping from just over par to 99.6, to yield 5.77%, according to Tradeweb.

Even so, HSBC found around €3.25bn in orders.

“It’s a good outcome in a weaker market. 6% is definitely decent value, especially for a €1bn trade,” said a banker away from the deal.

“As with ABN last week, for these kinds of names and these kind of yields, you don’t get the hedge fund money but you don’t need a big book for it to print and perform.”

He said there were diverging views on whether the bank had paid up since its outstanding bonds had widened as the deal was announced, but put the concession around 30bp at the final level.

HSBC’s 5.25% PNC8, issued last September, was bid at a yield of around 5.554% and a cash price of 98.7 at Monday’s open, according to Tradeweb. It was bid around 5.789% and 97.4 on Tuesday afternoon.

ASR Nederland found upwards of €900m for its BBB- rated deal, the second such insurance trade of the week after Danica Pension printed a BBB rated €500m deal at swaps plus 338bp on Monday. It was bid around 55bp tighter by Tuesday afternoon.

The lead downplayed any overlap with Danica.

“Most people would look at them autonomously - they’re from different geographies, different institutions and coming at different spreads. [ASR] is not the most well known name, but they are pretty well liked,” he said.

ASR last printed a subordinated bond last September, a perp non-call 10-year Tier 2 that was bid around swaps plus 416bp on Tuesday afternoon, having widened almost 20bp over the course of the day.

Societe Generale is also in the market with a 144A/RegS dollar perpetual non-call 10 AT1. IPTs came at 8.125%-8.25% and bankers anticipated a US$1bn size. Books were around US$4.5bn by early afternoon UK time, according to a lead.

Twelve issuers storm US high-grade market

Twelve borrowers stepped forward with high-grade bond deals on Monday, as the issuance floodgates opened after the Federal Reserve again opted to keep rates at zero for now.

The better tone drew chipmaker Applied Materials out with its first dollar bond offering in four years, while FIG issuance was also in abundant supply.

The central bank’s decision not to hike rates gave borrowers at least a few more weeks to raise funds at rock-bottom rates, with the yield on the 10-year Treasury at just 2.2%.

But with a projected hike of only 25bp anyway and the Yom Kippur holiday looming, market players said, the primary was headed for significant business no matter what the FOMC decided.

“It would have been busy either way, whether the Fed had raised rates or not,” one debt capital markets banker told IFR.

“But it has removed some uncertainty, and that has given issuers the push to go.”

As one investor told IFR: “We are inundated.”

The surge of deals left bookbuilds coming more slowly than usual, but demand continued to be strong - and issuers overall were able to pull pricing in significantly from IPTs to launch.

Wells Fargo launched its US$2.5bn 10-year senior holdco notes at T+137bp, in from initial price thoughts of T+145bp-150bp.

The investor said books for the three-tranche deal from

Applied Materials had reached US$3.5bn by noon and were likely to grow further.

Swiss bank UBS launched a US$4.3bn three-part senior TLAC-eligible bond - the first issue sold from the holdco it created last year. Books were US$11bn pre-launch, the investor said.

UBS launched the US$1.5bn five-year at T+150bp and the US$2.5bn 10-year at T+195bp - a good 15bp inside price talk on both tranches.

The strong demand may give European banks some confidence after Commerzbank and Banco Popolare Societa Cooperativa faced pushback on recent issues in their domestic markets.

The worry among European-based investors is how bail-in rules will be implemented across different countries.

UBS GROUP FUNDING

UBS Group Funding (Jersey) Limited, Nr/BBB+/A (s/s), announced a US$ benchmark 3-part senior unsecured note offering via sole-bookrunner UBS. Structure will consist of a 5-year fixed and/or floating, and a 10-year fixed. 144a/RegS w/o reg rights. UOP: to provide funds to UBS Group AG and its subsidiaries. Settlement date 9/24/2015.

IPTs: 5-year FXD T+165bp area, 5-year FRN 3mL+equivalent, 10-year fixed T+210bp area.

LAUNCH: US$4.3bn total.

- US$300m 5-year FRN at 3mL+144bp

- US$1.5bn 5-year FXD at T+150bp

- US$2.5bn 10-year at T+195bp

PRICED: US$4.3bn total.

- US$300m 5-year (9/24/2020) FRN. At 100, floats at 3mL+144bp

- US$1.5bn 2.95% cpn 5-year (9/24/2020) FXD. At 99.829, yld 2.987%. T+150bp

- US$2.5bn 4.125% cpn 10-year (9/24/2025). At 99.813, yld 4.148%. T+195bp

BOOK: US$13bn total

NIC: 5-year: 5bp (vs. UBS 2.35% ’20s at G+105bp. Add 40bp for bank/holdco premium, FV=G+145bp)

10-year: 5bp (5/10s curve worth 45bp, FV=G+190bp)

COMPS:

UBS 2.350% March 26, 2020 at G+105bp

* 40bp for bank/holdco premium *

BACR (Baa3/BBB) 3.650% March 16, 2025 at G+199bp

BACR (Baa3/BBB) 3.750% May 15, 2024 at G+155bp

HC/BK differential = 44 bp

CS (A1/A) 3.750% March 26, 2025 at G+195bp

CS (A1/A) 3.625% September 9, 2024 at G+154bp

HC/BK differential = 41 bp

 

WELLS FARGO & CO

Wells Fargo & Co (WFC), A2/A+/AA-, announced a US$ benchmark SEC registered 10-year (9/29/2025) senior holdco notes. Wells Fargo is sole book. UOP: GCP. Settle: T+5 (9/28/2015).

IPTs: T+145-150bp

PRICE GUIDANCE: T+140bp area (+/- 2.5bp)

LAUNCH: US$2.5bn at T+137.5bp

PRICED: US$2.5bn 3.55% cpn 10yr (9/29/2025). At 99.825, yld 3.57%. T+137.5bp.

BOOK: US$4.5bn

NIC: 7.5bp (5/10s curve worth 35bp, FV=G+130bp)

COMPS:

2.600% July 22, 2020 at G+95bp (holdco)

 

BNP PARIBAS

BNP Paribas SA, exp issue Baa2/BBB/A, announced a US$ benchmark 144A/RegS 10-year (9/28/2025) Tier 2 subordinated notes. BNP are sole books. Settle: 9/28/2015.

IPTs: T+245bp area

PRICE GUIDANCE: T+230-235bp

LAUNCH: US$1bn at T+230bp

PRICED: US$1bn 4.375% cpn 10yr (9/28/2025). At 99.050, yld 4.494. T+230bp. 1st cpn: 3/28/2016.

BOOK: US$2.85bn

NIC: 10bp (vs. 4.25% ’24s at G+212bp, add 8bp for maturity extension, FV=G+220bp)

COMPS:

4.250% October 15, 2024 at G+212bp (sub)

 

Accounting rules to challenge banking industry - Rtrs

The introduction of a new accounting standard for financial instruments will be challenging for the banking industry, especially when it comes to modelling for expected losses, the European Central Bank’s supervisory chief said on Tuesday.

“The completion of this accounting standard as one of the responses to the financial crisis will bring major changes and challenges to the industry, mainly regarding the implementation of the new expected loss model,” said Danièle Nouy, chair of the ECB’s banking supervisory arm.

She was referring, in remarks for a speech to be delivered in Paris, to the introduction of the International Financial Reporting Standard 9 (IFRS 9), due to take effect from 2018.

The rule was called for by leaders of the Group of 20 economies during the financial crisis, in which banks had proved too slow in covering for soured loans.

It marks a radical change for banks, requiring them to make some provision - at a level according to the bank’s view on the riskiness of a loan set against the economic outlook - even on the first day of the loan, and long before a default, the current trigger for provisioning.

The rule was written by the International Accounting Standards Board but needs formal European Union endorsement to become mandatory in the 28-country bloc. This process is taking some time, raising doubts about the start date.

Last week, Paul Ebling, a senior regulator at the Bank of England, said Britain’s top banks must comply with the IFRS 9 from 2018 even if there is delay in the rest of Europe.   

Results from earlier deals

Issue: SR-Boligkreditt €500m 0.5% Sept 2020 covered at MS+12bp

Issued: Monday 21 September

Leads: Commerzbank/JPM/LBBW/SG

Pricing steps: IPTs MS+15 area, guidance +13 area (+/-1), priced at +12.

Book size: over €700m

Distribution: Germany/Austria took 56%, Nordics 23%, Benelux 10%, other Europe 6%, Switzerland 3%, Asia 2%. Banks took 43%, asset managers 31%, central bank and official institutions 14%, corporates 8%, insurance/pension 4%.

New issue premium: 3bp over Sparebanken Vest

Secondary performance: Bid 2bp wider on Tuesday, according to Tradeweb


Issue: Danica Pension €500m 4.375% 30NC10 T2 at MS+338bp

Issued: Monday 21 September

Leads: Danske/HSBC/GS/JPM/UBS

Pricing steps: IPTs MS+350 area, guidance +340 area (+/-2), priced at +338

Book size: €1.35bn from 110 accounts

Distribution: Asset managers took 74%, pension and insurance 14%, hedge funds 8%, banks 4%. UK/Ireland 47%, Nordics 28%, Benelux 7%, Germany/Austria 6%, France 6%, Switzerland 5%, others 1%.

Secondary performance: Bid 55bp tighter on Tuesday according to Tradeweb

 

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