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Friday, 17 November 2017

SSAR Bond: France's €9bn dual-tranche bond

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Long-dated stampede

In a year that saw central bank bond-buying squeeze yields to previously unimaginable levels, France’s ultra-long dated 20 and 50-year April trade kicked off a trend that was unstoppable once it started.

Investors were desperate for yield in 2016, after European Central Bank bond buying helped push the yields on core government bonds into negative territory at maturities up to around eight years, and below 1% for much of the rest of the curve.

Sovereign issuers saw their chance to extend maturities, securing super-cheap funding and providing investors with much-needed yield.

France (Aa2/AA/AA/AAA DBRS) was the first issuer of the year to do this via syndication, pumping out an impressive €9bn of debt over 20 and 50 years in its first ever dual-tranche trade.

“It is the most important transaction in terms of size, duration adjusted,” said Anthony Requin, chief executive of Agence France Tresor, France’s debt management office. “It was also at that moment the first time a 50-year transaction has been issued below 2% yield.”

The €3bn 50-year tranche printed to yield 1.916%, while the €6bn 20-year portion printed at a reoffer of 1.31%.

The trade unleashed a cavalcade of similar transactions, with Belgium quickly joining the 50-year bandwagon, as well as Spain and Italy.

“The deal opened up the 50-year tenor for the market,” said Requin. “I take some comfort in seeing other issuers in this maturity basket now, as it creates a more favourable environment for liquidity.”

While later issuers are undeniably trickier fundamental credits – Spain did not have a government when it printed its €3bn 50-year in May, for instance – it was pioneering France that proved investor demand was there for debt of this length, and with a joint book of almost €20bn investors were shown to be clamouring.

And it was not just France’s 50-year tranche that stood out. The 20-year was also a new foray for the issuer, which usually prints 15-year debt for the compatibility it has with domestic insurance companies’ liabilities.

The thinking behind the 20-year tranche was twofold. First, France was confident that domestic insurers could be convinced to go further out on the curve in return for a pick-up in yield, and, second, to drum up momentum for the 50-year portion without overlapping the buyer base.

“There was truly different demand for each tenor with no cannibalisation,” said Requin. “Each transaction gave pricing power to the other. If there was not enough demand at the 50-year part of the curve, we could rearrange to put more into the 20-year part, but we did not need to.”

Barclays, BNP Paribas, Credit Agricole, HSBC, Morgan Stanley and Societe Generale ran the deal.

To see the digital version of this review, please click here.

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com

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