No let-up in Yankee supply as BNP prints US$2bn AT1

5 min read
Americas, EMEA

A touch of softness in the market did not deter BNP Paribas from extending the spree of Yankee bank supply, printing a US$2bn perpetual non-call seven Additional Tier 1 transaction on Monday.

The French bank's foray into the US dollar market comes after Barclays and Standard Chartered sold US$2bn 8% and US$1.25bn 7.75% AT1s, respectively, last week, in the busiest week for Yankee bank supply since January 2017.

The two UK trades were highly sought-after – in particular Barclays', which attracted final demand of US$7.25bn on Monday, versus Standard Chartered's US$3.1bn book on Thursday, according to sources familiar with the transactions. But confidence in the strength of the AT1 market was knocked slightly by moves seen after Friday's non-farm payrolls report.

While Barclays' transaction held firm above par and was quoted at a cash price of 100.20 on Monday morning, Standard Chartered's deal was quoted at 98.30.

"That is partly due to rates selling off a fair bit on Friday after the non-farm payrolls, as the numbers were very strong, meaning there’s anticipation that the Fed can now continue on its hawkish path," said a banker away from BNP Paribas' deal.

Due to that secondary market softness and the lower demand for Standard Chartered's follow up last week, the banker said it was therefore a surprise to see another AT1 hitting the tape so soon.

At the same time, an investor said the recent spree of AT1 issuance from BNP Paribas and other UK banks demonstrated their confidence in raising capital at a time when smooth execution could not be taken for granted.

”They’re showing the amount of headroom they have. They can go to the most subordinated debt market even in these volatile times," he said.

A banker close to BNP Paribas' trade acknowledged that the softness was not ideal but said it had not hurt the initial reception to the new issue.

"Initially those [cash price] levels were lower than we might have hoped, but we had a look this morning and felt the trade would still work nicely and felt that it would be good to steal a march [on any competing supply], and that has been validated by the reception we've had," he said.

Sole lead BNP Paribas priced the 144A-registered transaction at 7.75% in US hours after starting marketing at the 8.25% area after the European open. The new AT1 notes are expected to be rated Ba1/BBB–/BBB.

Interpretations of the price varied depending on whether bankers looked more towards BNP Paribas' secondary curve or to last week's AT1 transactions. The deal landed wide of most bankers' estimates of fair value at around the low-to-mid 7s.

"In terms of pricing, it certainly looks generous enough to work really nicely and generate decent demand," said the first banker.

Bankers expect to see further Yankee supply this week as issuers seek to take advantage of the depth of demand and execution certainty offered by the US dollar market, while European markets remained effectively closed.

Indeed, Credit Suisse Group priced a US$6.25bn three-part holdco senior transaction on Monday, offering four-year non-call three paper at Treasuries plus 325bp, six-year non-call five paper at 355bp, and 11-year non-call 10 paper at 380bp.

Bankers said, however, that BNP Paribas' deal will be closely watched by any other prospective AT1 issuers.

"I would not be surprised to see a bit more 144A or SEC-registered supply, but given we’ve now seen three AT1 transactions in a row, market participants will want to see the outcome of today’s trade first, to see what kind of concession is paid, how many investors are engaged, and then take it from there," said the first banker.

Before its new US dollar AT1 issue on Monday, BNP Paribas had stated its plan is to raise €2bn-€3bn-equivalent of AT1 this year, of which it had already raised €1.23bn-equivalent via a US$1.25bn 4.625% perpetual non-call five transaction in January.

As of the end of Q2, the bank held AT1 capital equivalent to 1% of its risk weighted assets, which analysts at CreditSights said is below its optimal level of 1.76%.

The bank has already called €1.48bn-equivalent of AT1 this year, while its next AT1 to come up for call is a US$1.5bn 6.625% transaction callable in March 2024.

Updated story: Adds pricing details