Spain returns to syndicated market

The Kingdom of Spain is expected to price its first syndicated issue in almost a year later on Wednesday in a sign that confidence is slowly returning to eurozone peripheral sovereigns.

Barclays Capital, BBVA, Deutsche Bank, Goldman Sachs, Santander and SG were mandated to tap the 5.85% January 2022 bond with an initial spread set at 35bp area over the outstanding April issue. It is the first time since a €4bn 15-year priced in March 2011 that Spain has gone down the syndication route.

“This is nicely conservative,” a syndicate banker away from the deal said. “Appointing six lead managers and doing a tap rather than a new deal should ensure that this is a success.”

Spain hopes to book between €2bn–€3bn on the transaction according to Reuters.

Auctions have been Spain’s only funding option for some time as its yields rose to alarming levels causing real-money investors to shun its debt. Spain had intended to sell a 10-year syndicated deal post-summer 2011, but it failed to surface.

However, in recent weeks, bankers have been more upbeat about Spain’s prospects following several well-covered auctions that have allowed it to complete about 20% of 2012 funding requirements. Meanwhile, 10-year yields have dropped back down to much more sustainable levels and closed at 5.04% on Tuesday.

According to Tradeweb, the outstanding €7.4bn January 2022 is bid at about 23bp over Spain’s 2021 bond, indicating a concession of about 10bp for the tap.

“It looks like a good price,” said another syndicate banker away from the trade. “The market is in risk-on mood with a decent sell-off in Bunds so it’s the right time to do a trade. It will be a big tap at €2bn–€3bn, but the market is in good shape to absorb that.”