Europe Financial Bond: ABN AMRO’s €750m AT1
Setting the bar In a remarkable Additional Tier 1 issuance boom that demolished supply records in September, one bank not only set the tone for all that followed, but also set a tight spread benchmark that subsequent issuers were unable to match.
ABN AMRO’s €750m perpetual non-call 10-year transaction on September 2 reopened the euro AT1 market after an almost two-month summer break and kicked off an unprecedented month of supply of the instrument.
The bond’s 10-year non-call period, unusually long for the euro AT1 market, is one aspect that instantly set it apart. The deal was the first euro AT1 in four years with a non-call period of 10 years or longer.
Deploying a format more commonly used in the US dollar market, the bank was able to tap demand for duration and yield as investors looked ahead to anticipated central bank rate cuts, with the Federal Reserve duly delivering a 50bp cut a few weeks later.
Such transactions are so rare in euros that it was a decision that ABN AMRO did not take lightly, said head of long-term funding and capital issuance Ruud Jaegers.
“We spent a lot of time researching whether it would be a successful deal,” said Jaegers, adding that the bank took comfort from investors saying only a handful of banks could pull off a PNC10 trade, and that ABN AMRO was one of them.
The decision was rewarded. Leads ABN AMRO, Bank of America, Goldman Sachs, Morgan Stanley and UBS marketed the bond with initial price thoughts of 7% area and set the coupon at 6.375% after demand passed €5.3bn.
Even though the deal was ABN AMRO’s second euro AT1 of 2024 – a rare example of a bank twice tapping the same currency in a single year – the book was also larger than that of ABN’s €750m 6.875% PNC7.5 deal in February.
The final book was around €4.75bn from more than 380 investors – over 100 more than participated in the previous AT1.
That was also despite the deal landing flat to some estimates of fair value.
But most impressive is the fact that the deal also secured the tightest reset spread of any euro benchmark AT1 since March 2022, landing at 390.2bp over mid-swaps.
The bond’s coupon was also, at the time of issuance, the lowest of any euro AT1 since March 2022. That record was subsequently beaten, but the coupon remains the third lowest of 2024.
The bank eschewed bells and whistles such as the widely adopted par call feature – with other issuers following suit as a debate developed around the real value of the optionality it provides to issuers.
It also opted not to include the clean-up call clause that several issuers inserted into their AT1s in 2024, with the relatively vanilla format welcomed by investors.
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