Asian Development Bank injected life into the sterling public sector market with a £350m long two-year on Thursday, though the changeable market is still a long way from its highs, with the £335m-plus books failing to cover the final size. Leads HSBC, NatWest Markets and TD Securities priced the bond at 64bp over the 2.75% September 2024 Gilt, 1bp in from guidance and around 10bp back of secondaries, according to a lead. He said that spread did not constitute a new issue concession, citing dislocation between secondary prices and clearing levels in primary. The deal emerged after a successful transaction from DNB Bank the previous day that showed the market was in good shape. Sterling offered ADB low single-digit arbitrage versus US dollar funding, the lead said, adding that the short tenor was where the deeper pockets of demand lay – central banks were the main accounts found there. Commenting on timing, the lead said: “The view, in the end, was that the combination of a back-up in yields plus an optically generous level versus secondary marks would work.” ADB also exploited the gap between swaps and Gilt spreads following the Bank of England’s announcement last week, according to a banker away from the deals. “The swap market is very volatile,” he said, “but SSA sterling [paper] trades to Gilts and moves a lot slower than dollars and euros and other currencies versus the swap market. Last week’s announcement by the Bank of England that it’s not going to sell anything shorter than three years – even though that was expected – moved swap spreads meaningfully wider, which created an opportunity. Hats off to Asian Development Bank to be the first to monetise that. “What’s good about the sterling market is you have a very short execution window. You can be in and out in the morning. You can be done before the US gets in. They’ve done this [ADB] trade even on CPI day, and inflation data are the key numbers … but you have to be aware that tomorrow could be a bad day.” Limited buyers, limited sellers This was an effective window for ADB, but the sterling market “is still not back to the good old days”, the lead said. “We’ve passed the major hurdle of the first round of central bank moves. … It is encouraging people to come back. But, frankly, swaps are still far too wide for anything to work properly. “The core [sterling] investor base away from central banks is UK bank treasuries. [The ADB deal] is the equivalent of Sonia minus 17bp, so there’s no real bank treasury swapping interest on that one. Until that dynamic changes, I don’t think we’ll see the same level [of participation].” And while some sterling investors are clearly interested, there are a limited number of issuers looking to do this short-end funding, the banker away said. Most sellers got that funding done earlier in the year. The constricted sterling bid and well-funded issuers were reflected in the sparse July supply. The pair of sterling SSA deals that did print got mixed receptions. International Finance Facility for Immunisation had a predictably easy time of it thanks to its unique vaccine exposure, printing a £250m 2.75% June 2025 bond. Inter-American Development Bank faced a stiffer market when it came with a £300m 2.375% August 2029 deal less than a week later, pricing flat to guidance at 56bp over the 0.5% January 2029 Gilt after the £200m-plus books failed to cover the size. Wednesday’s sterling deal is ADB’s second issue this week. It printed a A$450m (US$318m) tap of its 3.7% June 2025 Kangaroo gender bond the same day as the sterling deal. Leads ANZ, RBC and TD Securities priced it at 23bp over asset swaps, equivalent to ACGB plus 67.95bp.
As deteriorating market conditions and rising rates have increased the level of extension risk in the Additional Tier 1 market, speculation has mounted around a series of call decisions approaching in the coming months. Much of the discussion has centred on UBS Group's US$2bn 5% AT1, callable on January 31 2023. The bond stands out, as its 243.2bp reset spread is the tightest ever achieved on a European US dollar-denominated AT1. The deal has traded below par for most of its life, reflecting investors’ expectation that it would be extended because UBS would be highly unlikely to refinance it on similar terms. The deal was bid at a cash price of 94.40 on Wednesday. The bond came to be seen as the bellwether of a generation of AT1s issued during a period of relatively low yields and tight spreads. When it was issued late in January 2018, the yield of the Bank of America CoCo index hit what was then a record low of 4.35%, a far cry from its current 6.55%. "When that one got issued in 2018, we all looked at it and thought 'that will be a fun conversation in five years' time', and here we are," said a DCM banker. As the decision nears, however, some market participants now believe there is a relatively high probability that the bond is called. Bankers and investors say UBS can afford to refinance the bond even if the exercise is uneconomical and reason that the bank may want to maintain its investor-friendly track record. The decision from UBS’s domestic rival Credit Suisse to pay up to redeem a US$1.5bn 7.125% AT1 and replace it with a US$1.65bn 9.75% transaction in June – with the cost of the new issue heightened by the negative headlines surrounding the bank – may also set a precedent. "The fact that Credit Suisse called and refinanced at a higher cost puts some pressure on UBS," said an investor. "UBS have a large wealth management franchise and it is possible that some of those wealth management clients also invest in UBS's instruments, so it is a tricky case for them and they have to be careful of any potential reputational damage if they do not call this bond."Defining 'economic' A recent repricing in the AT1 market, if it continues, could move the needle sufficiently to make refinancing exercises more economical for issuers, bankers said. “We have seen a pretty quick repricing in markets, particularly the AT1 market in recent sessions, and looking at the pricing for some issuers, it really has improved," said the DCM banker. "I suspect that for some of the calls that may have looked slightly tenuous or uncertain, levels have now improved.” However, market participants stressed that many more factors can influence call decisions, as shown by the speculation around UBS, making predicting the fate of the current crop of calls a complex task. A second investor said that in the context of AT1 refinancings the exact meaning of the term 'economic' is open to interpretation. "I think a fair proportion of the market just looks at reset levels, thinks about at what level a bank might issue a replacement AT1 and judges the probability on that basis," he said. "I think that is too simplistic – there are other things that go into a bank’s analysis of what’s 'economic', not least the gains/losses on hedging and FX associated with any one particular AT1. On top of this, some banks also factor in the reputational cost of not calling (ie, in terms of whether this results in higher future financing costs), especially where AT1s have been placed into private bank or wealth management client bases, where these customers expect the bonds to be called." Other considerations include the bank's flexibility to call their AT1s after skipping the first call date, depending on the frequency of subsequent calls, and the size of the bank's capital buffers over minimum requirements, which may allow them to call an AT1 without replacing it. Market participants pointed to HSBC as a case in point.
Mexican non-bank financial institution Unifin announced on Monday it would stop making interest and principal payments on its debt, effective immediately. Attributing its decision to the "global economic environment" affecting Mexico's non-bank financial sector, the company said it plans to move forward with a "strategic restructuring." Unifin's dollar-denominated bond debt totals US$2.4bn, according to Refinitiv data. The Mexico City-based company said it intended to negotiate standstill agreements for the short-term with its creditors. Rothschild, AlixPartners, Sainz Abogados and Skadden Arps are advising Unifin on the restructuring. On Unifin's second-quarter earnings conference call, bondholders raised concerns about the company's ability to meet its obligations for bonds maturing in 2023 and 2024. In response, CEO Sergio Camacho outlined plans for the company to issue a Ps4bn (US$196m) local long-term bond in the third quarter which he said would be partially guaranteed by Mexican national development bank Nacional Financiera. In addition, he said Unifin could also look to raise US$175m through a private dollar-denominated placement by the end of the year. The B+/BB– rated institution, which operates in the leasing segment for small and medium-sized Mexican enterprises, has US$318m of a 7.25% unsecured senior bond coming due September 2023. In 2024, it is on the hook to pay US$200m for a 7% note due August 2022 that bondholders recently agreed to extend to avoid a default. On Tuesday, the company's 2023s were quoted at 53.25, down from 91.625 at the start of the year. Two other Mexican non-bank financial institutions – Credito Real and AlphaCredit – recently filed for bankruptcy.
Mexican non-bank financial institution Unifin announced on Monday it would stop making interest and principal payments on its debt, effective immediately. Attributing its decision to the "global economic environment" affecting Mexico's non-bank financial sector, the company said it plans to move forward with a "strategic restructuring." Unifin's dollar-denominated bond debt totals US$2.4bn, according to Refinitiv data. The Mexico City-based company said it intended to negotiate standstill agreements for the short-term with its creditors. Rothschild, AlixPartners, Sainz Abogados and Skadden Arps are advising Unifin on the restructuring. On Unifin's second-quarter earnings conference call, bondholders raised concerns about the company's ability to meet its obligations for bonds maturing in 2023 and 2024. In response, CEO Sergio Camacho outlined plans for the company to issue a Ps4bn (US$196m) local long-term bond in the third quarter which he said would be partially guaranteed by Mexican national development bank Nacional Financiera. In addition, he said Unifin could also look to raise US$175m through a private dollar-denominated placement by the end of the year. The B+/BB– rated institution, which operates in the leasing segment for small and medium-sized Mexican enterprises, has US$318m of a 7.25% unsecured senior bond coming due September 2023. In 2024, it is on the hook to pay US$200m for a 7% note due August 2022 that bondholders recently agreed to extend to avoid a default. On Tuesday, the company's 2023s were quoted at 53.25, down from 91.625 at the start of the year. Two other Mexican non-bank financial institutions – Credito Real and AlphaCredit – recently filed for bankruptcy.
Freddie Mac said on Tuesday it bought US$2.461bn of older credit risk transfer securities in a tender offer. The second biggest US mortgage finance agency purchased the STACR 2022-TO3 securities so it could retire bonds it no longer considers economic as a hedge against defaults on the mortgages it guarantees. After the operation, which concluded on Monday, Freddie now has tendered US$7bn of these securities in 2022. The M-2 and M-3 tranches across 20 transactions issued from 2014 to 2018 through the Structured Agency Credit Risk program were eligible for the cash tender offer. The notes' original principal amount totaled US$3.57bn. BofA Securities and Wells Fargo were the lead dealer managers and Academy Securities was the co-dealer manager. Freddie and Fannie Mae launched tenders for their CRT last year in the wake of surging home prices since the pandemic began, which has reduced the default risks on the mortgages they guarantee.
Asian Infrastructure Investment Bank has found traction in the US dollar market with an FRN outing, despite geopolitical risks around two of its biggest members, Russia and China. Over two days of marketing, the supranational gathered over US$780m of interest for its five-year sustainable development bond, easily covering the US$500m size. “A couple” of reverse enquiries helped drive the trade, a lead said, with bank treasuries anchoring the book. Leads Barclays, Nomura and Standard Chartered set the spread at 62bp above SOFR, 1bp in from guidance. Fair value is in the high-50s, the lead said, using the issuer’s January 2026 fixed as the comparable. Assessing fair value was complicated by China’s reaction to US House Speaker Nancy Pelosi visiting Taiwan last week, which moved AIIB’s curve, the lead said. China has a little more than 26% of the voting power at the AIIB. That geopolitical stress does add to the return. “For the Triple A rating,” the lead said, “they do trade a bit wide given the ongoing geopolitical developments.” The trade’s main attraction is “the price for the rating”, the lead said. “It’s a decent spread.” AIIB is offering 20bp to 25bp more than the World Bank, according to bankers away from the trade. The spread “looked like a fair level,” said a DCM banker away from the deal, calling it “investor-conscious”. A second banker away also said the spread looked appropriate, putting the premium at 5bp to 6bp.Russia still front-of-mind For investors considering AIIB exposure, the Russian shareholding is the biggest geopolitical concern, the lead said. He experienced some pushback on the Russian risk, he said, but not on China, even with escalating tensions in the Taiwan Strait. “This is not a straightforward transaction,” he said. “There is still plenty of liquidity for Triple A paper. But the realities are evolving in terms of what people can buy… People’s views – on Russia in particular – evolve.” “Through conversations you know who would care and who wouldn’t. But the live transaction always gives you a bit of a firmer view of where people stack up.” Russia controls close to 6% of the votes at the AIIB. The supranational distanced itself from the country following its invasion of Ukraine, stating that “all activities relating to Russia and Belarus are on hold and under review” in early March. Buyers may have concerns about AIIB’s ties to Russia, but market conditions are clearly conducive for funding. The deal comes into a constructive US dollar market that has seen a string of FIG and corporate issuance, though SSA paper has been sparse. The space is “definitely constructive and a little bit firmer after the July FOMC meeting,” the first banker away said. “Investors have a bit more conviction.” “The July FOMC meeting was a big inflection point for lots of investors and book-ended a difficult first half of the year,” the banker added. “Now, investors have a little bit more clarity on what might come for the rest of the year so can be a bit more confident in how they allocate their portfolios.” AIIB previously found a difficult US dollar market when it printed a US$1.25bn 3.375% three-year SDB in late June. The leads BNP Paribas, Citigroup, Deutsche Bank and TD Securities got books to US$1.6bn, but could not tighten it from the SOFR mid-swaps plus 38bp IPTs.
Freddie Mac said on Tuesday it bought US$2.461bn of older credit risk transfer securities in a tender offer. The second biggest US mortgage finance agency purchased the STACR 2022-TO3 securities so it could retire bonds it no longer considers economic as a hedge against defaults on the mortgages it guarantees. After the operation, which concluded on Monday, Freddie now has tendered US$7bn of these securities in 2022. The M-2 and M-3 tranches across 20 transactions issued from 2014 to 2018 through the Structured Agency Credit Risk program were eligible for the cash tender offer. The notes' original principal amount totaled US$3.57bn. BofA Securities and Wells Fargo were the lead dealer managers and Academy Securities was the co-dealer manager. Freddie and Fannie Mae launched tenders for their CRT last year in the wake of surging home prices since the pandemic began, which has reduced the default risks on the mortgages they guarantee.
Portillo’s late Monday launched a US$227.5m "synthetic" secondary to allow sponsor Berkshire Partners to pare its stake, a deal that follows a 45% surge in the Chicago-style hot dog chain's stock price in the past two weeks. Jefferies, Morgan Stanley, Bank of America and Piper Sandler are leading the two-day marketed sale of 8m Class A shares or about 11% of outstanding A and B shares versus Monday's US$28.44 close. Portillo's shares fell 9.1% to US$25.84 early in Tuesday's session after soaring to as high as US$28.93 on Monday, up sharply from US$19.61 on July 26 and now back above the chain's US$20.00 IPO price set in October last year. Marking its first follow-on since the US$405.4m IPO, Portillo's is using proceeds to buy LLC units mostly from Berkshire (the "synthetic secondary" nature of the deal). Berkshire, which is reducing its stake to 54.3% from 65.6%, and other major holders have agreed not to sell more shares for 75 days. The secondary stock sale comes on the heels of Portillo's second-quarter earnings report last Thursday, which showed weaker-than-expected same-store sales growth but better-than-expected margins as the chain fended off the twin challenges of rising meat prices and labor costs. The sharp move higher accompanied a rally in growth stocks despite concerns about the macro environment, delays in new openings and pressures that saw same-store sales rise only 1.9% in the period as price rises offset lower traffic. Nevertheless, higher restaurant-level Ebitda margins (25.5%) seem to have restored faith in the chain’s long-term growth prospects, analysts note. Portillo's operates 71 restaurants in nine states and is best known for its Chicago-style hot dogs, Italian beef sandwiches, char-grilled burgers, fresh salads and chocolate cake.
Asian Infrastructure Investment Bank has found traction in the US dollar market with an FRN outing, despite geopolitical risks around two of its biggest members, Russia and China. Over two days of marketing, the supranational gathered over US$780m of interest for its five-year sustainable development bond, easily covering the US$500m size. “A couple” of reverse enquiries helped drive the trade, a lead said, with bank treasuries anchoring the book. Leads Barclays, Nomura and Standard Chartered set the spread at 62bp above SOFR, 1bp in from guidance. Fair value is in the high-50s, the lead said, using the issuer’s January 2026 fixed as the comparable. Assessing fair value was complicated by China’s reaction to US House Speaker Nancy Pelosi visiting Taiwan last week, which moved AIIB’s curve, the lead said. China has a little more than 26% of the voting power at the AIIB. That geopolitical stress does add to the return. “For the Triple A rating,” the lead said, “they do trade a bit wide given the ongoing geopolitical developments.” The trade’s main attraction is “the price for the rating”, the lead said. “It’s a decent spread.” AIIB is offering 20bp to 25bp more than the World Bank, according to bankers away from the trade. The spread “looked like a fair level,” said a DCM banker away from the deal, calling it “investor-conscious”. A second banker away also said the spread looked appropriate, putting the premium at 5bp to 6bp.Russia still front-of-mind For investors considering AIIB exposure, the Russian shareholding is the biggest geopolitical concern, the lead said. He experienced some pushback on the Russian risk, he said, but not on China, even with escalating tensions in the Taiwan Strait. “This is not a straightforward transaction,” he said. “There is still plenty of liquidity for Triple A paper. But the realities are evolving in terms of what people can buy… People’s views – on Russia in particular – evolve.” “Through conversations you know who would care and who wouldn’t. But the live transaction always gives you a bit of a firmer view of where people stack up.” Russia controls close to 6% of the votes at the AIIB. The supranational distanced itself from the country following its invasion of Ukraine, stating that “all activities relating to Russia and Belarus are on hold and under review” in early March. Buyers may have concerns about AIIB’s ties to Russia, but market conditions are clearly conducive for funding. The deal comes into a constructive US dollar market that has seen a string of FIG and corporate issuance, though SSA paper has been sparse. The space is “definitely constructive and a little bit firmer after the July FOMC meeting,” the first banker away said. “Investors have a bit more conviction.” “The July FOMC meeting was a big inflection point for lots of investors and book-ended a difficult first half of the year,” the banker added. “Now, investors have a little bit more clarity on what might come for the rest of the year so can be a bit more confident in how they allocate their portfolios.” AIIB previously found a difficult US dollar market when it printed a US$1.25bn 3.375% three-year SDB in late June. The leads BNP Paribas, Citigroup, Deutsche Bank and TD Securities got books to US$1.6bn, but could not tighten it from the SOFR mid-swaps plus 38bp IPTs.
DNB Bank stirred the dormant sterling bank senior unsecured market with the first new issue in two months on Tuesday, landing its inaugural senior non-preferred note in the currency, a £750m five-year non-call four transaction. The deal is the first new bank senior unsecured bond denominated in sterling since June 7, when Royal Bank of Canada and OP Corporate Bank both tapped the market. Some bankers said it came as a surprise to see a sterling trade so early in August, having expected the primary market to remain idle for another week at least. "It demonstrates that you can still get an inaugural asset class done in sterling even in the peak summer months, which tells you that the nuances of the senior non-preferred security are viewed as being extremely vanilla in the sterling market these days and that you don't necessarily need to worry about a high level of marketing for an individual credit," said a banker away from the leads. "They are in part piggy-backing off a decent volume of sterling senior unsecured supply by non-UK names, which has occurred a lot in recent years." A banker at one of DNB's leads said feedback on the trade indicated that sterling investors are receptive to supply from highly rated, well-known names. The deal, which is expected to be rated A3/A (Moody's/S&P), is DNB's first sterling-denominated senior non-preferred issuance. The Norwegian issuer is, however, well established in the currency, having sold a handful of sterling senior preferred notes in recent years, the last a £750m four-year non-call three transaction in March. "It's becoming an increasingly technical market and it felt to us a reasonable opportunity for the buyside to pick up a name that is not the most frequent issuer at a decent spread, and the book updates we've put out reflect that," said the lead banker. Leads Credit Suisse, HSBC and Nomura marketed the new issue with initial price thoughts of Gilts plus 225bp area. The spread was later set at 215bp with books above £700m. "It went better than I expected," said a second banker away from the deal. "Fair value is somewhere in the 200bp area plus or minus 5bp, and a £700m book for this time of the year is a pretty decent result. It also looks relatively sensible versus where their euro pricing would land." The leads went on to fix the size at £750m, with the book closing above £925m. Bankers disagreed on the level of arbitrage achieved by DNB, with some arguing it had obtained a saving in the mid to high single digits versus the spread at which it could have priced in euros, while others argued the deal had priced roughly flat to slightly back of the single currency. Subjective views on curve adjustments and the premium that would be required in the euro market – which is effectively closed regardless – were the reasons for the differing views. The deal's inaugural nature meant that interpretations of the premium paid by DNB also diverged. Extrapolating from DNB's sterling senior preferred curve, as well as sterling senior non-preferreds from other Nordic issuers, bankers variously calculated that the new issue's fair value was either in low to mid-190s or in the high 190s. While the US dollar market has proven its availability in recent weeks, European issuers have had to pay up significantly versus their home currencies in order to print in size – hence DNB's selection of sterling. "If you're a non-frequent issuer, why on earth would you want to be paying up? We've seen the bigger funders looking at the European market with low conviction on the volumes there, so they are effectively saying with their actions that they're prioritising strategic access to the US dollar market," said the lead banker. "But that's not for everyone." Nordic issuers are usually among the first to emerge from their summer blackout periods. Bankers anticipate that further senior supply will emerge from the region over the coming weeks, as many is
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