RCI Banque makes standout AT1 debut
RCI Banque, the financing arm of Renault, rode a wave of demand as it priced its inaugural Additional Tier 1 bond on Wednesday, with the novel €400m perpetual non-call 5.5-year transaction ending up more than 18 times subscribed.
RCI Banque has been supervised as a bank by the European Central Bank since 2016 and is a regular issuer in the senior unsecured market and also now established in the Tier 2 market, but its new issue is something of a rarity. Examples of automobile captive finance firms or entities from non-traditional banking groups issuing AT1 capital remain few and far between.
In 2019, vehicle leasing company LeasePlan sold an inaugural €500m AT1, though LeasePlan has since been acquired by ALD, a subsidiary of Societe Generale, and rebranded as Ayvens. Like other car financing firms that have a bond market presence but, unlike RCI, are part of banking groups, Ayvens now draws on its parent entity for its regulatory capital needs.
While in some markets such unfamiliarity could prove challenging in a subordinated transaction, in the current market investors have proven to be exceptionally keen on deals offering diversification and yield.
Relatively low levels of FIG supply for the time of year have meant issuers have regained the upper hand in pricing terms, and valuations across the euro AT1 market have become compressed, with a wide range of issuers pricing in the mid-5s to low-6s.
"Anything coming with a bit more juice, adding that extra bit of yield – that's what investors in investment grade want," said a corporate DCM banker away from the leads.
Citigroup, Credit Agricole, Natixis and Societe Generale opened books for the €400m (no-grow) trade with initial price thoughts of 6.75% area.
The coupon was set at 6.125% on more than €7.4bn of demand.
A lack of direct comparables meant there was a range of views on fair value, but most bankers put it between 6% and 6.25%.
Pricing put it at the higher end of a range of coupons for recent euro AT1s from banks, offering a pickup to a €500m perpetual non-call 10-year priced at 5.875% by CaixaBank on Monday, but still in line with deals such as a €1bn 6.125% perpetual non-call seven-year AT1 priced by Societe Generale on September 10.
"It’s a strong result given that they were able to compress by 5/8ths," said a FIG syndicate banker away from the deal.
RCI's AT1, which is expected to be rated Ba3 by Moody’s, also offered a pickup over corporate hybrids. On Wednesday, for example, Veolia Environnement priced an €850m perpetual non-call 7.33-year hybrid at 4.325%.
The response to the deal also showed investors are not put off by uncertainty around the auto industry. While Renault does not sell into the US and is therefore less exposed to tariffs than some of its rivals, it has still been hit by other sectoral headwinds, such as competition from China.
“For the most part, investors looked at the issuer on a standalone basis rather than in conjunction with the parent ... they didn’t let any auto concerns blur the picture,” said a banker close to the deal, who said the order book was similar to a typical AT1 in its composition.
RCI said the inaugural deal is intended to optimise its capital structure and strengthen its total capital ratio in anticipation of balance sheet growth.
The bank's total capital ratio was 15.4% at the end of June, having fallen from 17.7% at the end of 2024 mainly due to the implementation of Basel III regulations.
Additional reporting by Lucy Frost and Malicka Sielinou