Taking the right steps
In a uniquely challenging year, the qualities of one of the financial sector’s most well-regarded issuers came to the fore. For the urgent yet controlled execution of its issuance, for its blend of ingenuity and attention to detail and for its sector-leading read of the markets, Rabobank is IFR’s Financial Issuer of the Year.
Looking back on Rabobank’s year in financial markets, many transactions stand out. But for arguably the best illustration of how the Dutch bank repeatedly got the big calls right, look to March 30, when in an apparently unpromising market it decided to execute its most difficult and strategically important trade of the year.
As issuers and investors were still getting to grips with the new reality of war in Europe after Russia’s invasion of Ukraine a month earlier, Rabobank lined up a perpetual non-call December 2029 Additional Tier 1 transaction. The deal would be a test of how low coupons could go after a repricing of the sector.
Euro-denominated AT1s from Intesa Sanpaolo and Deutsche Bank the week before had unlocked the market in style, after the outbreak of the war further battered a product already hit hard by rising rates.
But those trades offered coupons with 6% handles, whereas Rabobank – as one of the tightest-trading issuers – set its sights on a much lower price. Bankers remarked at the time that it did not seem an obvious moment for such a test of the AT1 market’s lower bounds.
Rabobank had other ideas, sensing its opportunity in a short-lived period of stability, as recent AT1s tightened in the secondary market.
“The market seemed to be more stable, rates more stable and swaps more stable, so we thought ‘let’s have a close look’ because our view was that we would still expect some volatility in the market again,” said Ariane Bruinsma, global head of long-term funding and capital at Rabobank.
The perpetual non-call December 2029 transaction was marketed with initial price thoughts of 5.375% area.
By the time the final level was set at 4.875%, the deal offered a relatively slim concession of around 12.5bp, yet it still pulled in more than €6.5bn of orders.
If investors felt at the time that the opportunity to buy Rabobank at close to 5% was an opportunity too good to miss, then in hindsight it is Rabobank that can take the most satisfaction from the deal’s price.
From the vantage point of a year later, the deal’s coupon looks like a relic of a past era, something far out of reach.
In the months that followed, the AT1 market continued to sell off, with core European lenders pricing AT1s anywhere from the low sevens at the tight end to 10% at the wide end – vindicating Rabobank’s timing.
That trade is just one example out of many that testifies to Rabobank’s astute read of the market.
These qualities have been proven over many years but came to the fore in 2022, a year frequented by periods of market disruption and dislocation that tested issuers like no other.
Honed over many years, they are the product of tireless work behind the scenes – of intensive international investor work and a constant dialogue with bankers.
Syndicate and debt capital market bankers along the Street are effusive in their praise of the expertise and sophistication of Rabobank’s team, applauding them for being ever engaged and constructive, eternally vigilant for new opportunities, and always receptive to ideas yet confident in their own views and ready to challenge the feedback received.
The result is an issuer adept at navigating turbulent markets, able to leverage its popularity with investors and its quality as one of Europe’s strongest banks and proficient at securing the tight pricing warranted by that quality even in difficult times.
In 2022, that meant moving quickly.
Behind the scenes
Rabobank was not alone among issuers in expecting rates to rise and market conditions to worsen over the course of 2022, nor was it alone in front-loading its issuance as a consequence. But bankers said the issuer was unique in the extent to which it moved to de-risk its funding plan early and the way it went about it.
On January 4, the first actionable day of the year, Rabobank hit the sterling market for a £400m 6.5-year non-call 5.5 senior non-preferred, before following the next day with a two-part US$1.45bn senior preferred.
“Our view was that the market would be volatile, and the windows limited – obviously even more so after Russia’s invasion of Ukraine,” said Bruinsma. “That put even more focus on being flexible and on monitoring all markets at the same time.”
Another trade worth highlighting is one that took place away from the limelight of the public primary market, a trade few issuers could execute.
In early January, after kicking off its 2022 issuance programme away from home with those sterling and US dollar senior transactions, Rabobank sold a €750m 12-year senior non-preferred as a club deal – securing an unusually large size for a non-public issuance.
The deal came at a time when investor concern over the trajectory of rates was undermining demand for long-dated debt.
However, by avoiding the public market and targeting a specific pocket of demand, Rabobank secured a tighter price than would otherwise have been available.
The deal was priced with a coupon of 1%. The spread was not officially disclosed but bankers away from the deal variously put it between 55bp and 60bp.
The obvious comparison was with a €1bn 12-year SNP sold by ABN AMRO, Rabobank's compatriot, in the public market the following day. Albeit for a larger size, its modestly subscribed deal was priced at a substantially wider spread of 84bp with a coupon of 1.25%.
Rabobank would also use the private placement market to good effect in the covered bond format.
After pushing the boundaries of the duration-shy market with a €1.75bn 10-year covered bond on February 21 – the largest long-dated covered bond in over two years – the bank pushed even further out the curve through a series of private placements.
Through the deals, which each had tenors of 15-years or longer and almost totalled a benchmark size, Rabobank again secured prices and volumes otherwise out of reach.
By the end of a busy first quarter, capped by the March AT1 and another visit to the US dollar senior market the same day, Rabobank had already raised about 60% of its 2022 funding plan.
Being so advanced meant Rabobank could continue to monitor various markets and windows but with reduced pressure, able to pick its moments as volatility remained a constant and spreads – as predicted – continued to widen.
Aided by the local knowledge of its funding officials in New York and Sydney, Rabobank would ultimately issue benchmarks in six currencies – euros, US dollars, sterling, Swiss francs, Australian dollars and New Zealand dollars – and a private placement in one more: yen.
Remarkably, its first publicly issued senior unsecured trade of the year in its home currency did not emerge until October 20, when the bank sold a €1bn 5.25-year non-call 4.25 SNP.
Rabobank was able to price the deal at 155bp over swaps while paying – by the standards of the time – a relatively low concession of some 18bp.
That it was able to generate that price tension was partly due to the artificial scarcity Rabobank had manufactured in its home market.
“It is easy to enter a market and do a deal at whatever price, but it is more difficult to enter a market when you’re one of the tightest pricing banks globally,” said Bruinsma. “It is more difficult to actually keep that price tight and still be able to get all your funding in.”
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