Wallonia strikes across curve ahead of supply surge
Wallonia funded across the curve last week ahead of what's expected to be an imminent surge in supply. It managed to build a combined book of €10bn across its dual-tranche trade by launch, a testament to the rewards of taking a "pragmatic" approach to the market, as a lead on the deal termed it.
"The issuer was not looking to tighten to the last basis point," the lead said. "Maybe we could have tightened by another basis point, but the ... idea was to be fair with investors, have a good transaction and make sure it performs in the secondary market. It's a very pragmatic issuer ... and it works."
Appealing to two distinct investor bases with two bond issues in distinct areas of the curve was another part of the issuer's strategy. "The idea was to have a bit of room between the two tenors," the lead said, "because you don't want any cannibalisation [of demand] between the two."
Demand was roughly the same between the two tranches. Wallonia got a €4.8bn bid for its new €1bn June 2032 line by launch and €5.1bn for the €700m tap of its March 2043 social bonds.
Both the lines tightened by 2bp to land 42bp over their respective OLO references. The seven-year was priced over the 0.35% June 2032 OLO, while the social bond tap used an interpolated level between the 3.45% June 2042 and 3.45% June 2043 OLOs.
Belfius, Natixis, NatWest, Nomura and NordLB placed the Belgian region's debt.
The tranches each paid 4bp of new issue concession at landing, according to the lead. He added that Wallonia offered an attractive pickup over the OLO curve, especially compared with what French and Spanish public sector issuers are offering versus their sovereigns.
Buyers looking for spread versus mid-swaps got something from the deal. Based on where the syndicate banks assessed the tranches' mid-swap spreads when they announced guidance levels, the long seven-year offered 82bp at landing, while the long tranche carried a spread of 143bp. Those levels are both optically attractive for SSA products.
The region timed its deal to price it ahead of the Federal Reserve's rate decision later on Wednesday and before the French public holiday on Thursday, the lead said.
"We were lucky with the window," he told IFR. "It was fairly stable and there was not much competing supply."
Multiple bankers have told IFR that they expect the upcoming week's SSA market to be far busier. Among the largest in that supply will be the European Union's next syndication.
Wallonia, while it brought the day's biggest SSA deal, was not alone in the primary market on Wednesday.
The Asian Infrastructure Investment Bank got €2.2bn of interest for its €1bn seven-year sustainable development bond offering. Deutsche Bank, JP Morgan, NatWest and Societe Generale took the spread in 1bp to land it at 39bp over mid-swaps.