Patience proves a virtue for KA senior bond
After biding its time sitting on the sidelines of the market, Kommunalkredit Austria on Tuesday secured a €500m six-year senior preferred transaction that was three times subscribed at the peak of demand.
The Austrian bank's senior preferred offering was announced last Tuesday, with investor calls marketing the deal running through to Wednesday afternoon. However, after a period of volatility in broader markets, the issuer subsequently took more time to prepare the trade and gather feedback from investors.
Bankers said a cautious approach was warranted for what is a relatively rare and smaller issuer in the European banking landscape, while bankers away from the deal noted that KA has on occasion struggled to generate broad investor interest for its trades, reflecting its somewhat niche business model as an infrastructure finance specialist.
"It's not a name that we see too often, a name that in the past has had some troublesome executions," said a syndicate banker away from the leads.
In that context, bankers deemed the new issue to be a clear success.
"It is not a 10-out-of-10 market and, [for] a smallish bank issuer with a limited investor following in the market, it's not a given that it would be a stellar trade, but we’re very happy with the outcome," said a banker at one of the leads.
Lead managers ABN AMRO, Danske Bank, HSBC, Morgan Stanley, Raiffeisen Bank International and UniCredit finally opened books for the no-grow deal on Tuesday morning with initial price thoughts set at mid-swaps plus 210bp area.
Bankers noted that level looked attractive versus KA's outstanding senior preferred paper, given its €500m 5.25% March 2029s were quoted at a spread of 134bp when the mandate was announced last week.
However, bankers questioned whether those bonds were sufficiently liquid to serve as a useful comparable and those on the deal said that the IPTs were based on feedback from investors, rather than the secondaries.
Most bankers refrained from putting a number on the deal's fair value, though some away from the deal suggested the final new issue premium was around 10bp.
With demand topping €1.5bn, the leads ultimately set the spread at 180bp. The final book stood above €1.3bn.
"Investors want to get credit, but they just want to make sure that they get the valuation right," said the lead banker. "All trades that have had an intelligent approach to sizing and pricing are doing fine and therefore we are so happy with the Kommunalkredit Austria [trade]."
Bankers noted that the 30bp of spread tightening was higher than the recent norm in the euro senior market, albeit the outright spread for the deal is significantly wider than for most senior preferred offerings.
The deal is expected to be rated BBB by S&P.