Financial Issuer: Bank of Ireland

IFR Review of the Year 2013
5 min read

Shoulder to shoulder

It’s not every year that IFR awards an issuer that burnt its bondholders. But the turnaround story of Bank of Ireland saw it successfully place covered, senior and Tier 2 bonds, while its government-owned CoCos were also sold off. All this came not long after it had left investors with almost nothing. The bank is IFR’s Financial Issuer of the Year.

Since November 2012, Bank of Ireland has run the full gauntlet of the debt capital markets. It met with nearly 450 investors and convinced many that despite its recent hardship it has a bright future.

“Bank of Ireland’s turnaround has been phenomenal,” said Barry Donlon, head of capital solutions at UBS. “It seized an opportunity created by an improvement in the sovereign’s position and its own credit to access demand across its capital stack.”

Unlike other issuers that came under IFR’s consideration for this award, Bank of Ireland faced two colossal challenges – not only was it partially bailed out by the Irish state, but it is also based in a bailed-out country.

These factors meant the Irish lender was facing an unforgiving crowd of investors still licking their wounds from aggressive liability management exercises that left them receiving as little as 10 cents on the dollar for previous holdings. But even those who suffered losses were quietly impressed with the issuer’s rehabilitation.

“Being able to issue in the face of adversity is something that Bank of Ireland should be commended for,” said a London-based fixed-income investor. “They have been quick to clean up the mess they have made and get back into the market which is a great story.”

Bank of Ireland started out on its debt capital markets journey (outside the awards period) by selling a defensive €1bn three-year covered bond that reopened the market for Ireland’s banks for the first tme since 2009.

It then took a giant leap of faith and attempted to sell €250m of 10% Tier 2 capital in December – the deal succeeded and in doing so caught the attention of the Irish state that was keen to exit its stake in the issuer’s CoCo and show the country’s lenders were able to stand on their own two feet.

The strong performance of the Tier 2 deal, coupled with the growing momentum of Ireland’s recovery story, meant a rapid bookbuilding process for the CoCo.

The state was flooded with nearly €5bn of orders for the three-year instrument, which was sold to hedge funds, asset managers and some retail investors.

In its own good time

Bank of Ireland also has to be commended for its perfect timing. It managed to sell its first senior unsecured bond since the crisis in May – a €500m three-year senior at mid-swaps plus 220bp – getting in just before talk of US tapering led to a massive market sell-off.

“Issuing senior unsecured bonds is a significant milestone for the bank,” said Darach O’Leary, head of wholesale funding at Bank of Ireland.“This issuance provides further evidence of the progress made by the group, especially considering the significant support from investors in the bookbuilding process.”

Investors jumped at the chance to buy the bond, leading to a €1.25bn order book, but as the Fed discussions began to rattle the market the bond sold off by 100bp in the secondary market and has only recently recovered.

More recently, Bank of Ireland has been pushing the boundaries even further, selling a seven-year covered bond, the longest maturity from an Irish bank since the financial crisis. This has further raised hopes that the country’s lenders can stage a full recovery and decouple from their peers in the rest of the ailing eurozone periphery.

“Bank of Ireland provided a real test of investor sentiment for longer-dated debt from the country’s banks,” said Alexandra MacMahon, head of EMEA FIG DCM at Citigroup.

The improvement in the bank’s position can also be seen through its primary transactions over the past year. It started out having to sell a three-year covered bond at 270bp 12 months ago and by the end of 2013 has sold a long three-year secured issue at 120bp – halving its issuance spread.

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