Raiffeisen Schweiz Genossenschaft cleared the considerable hurdles of an ongoing feud between investors and the Swiss financial regulator and the broader fallout of the downfall of Credit Suisse to complete the first euro senior deal from a Swiss bank since its larger neighbour's rescue in March.
The cooperative last week pulled in more than €900m of orders for its €500m bail-in senior bond deal barely a month after UBS's state-backed takeover of Credit Suisse on March 19. That made for a difficult backdrop, with holders of Credit Suisse's Additional Tier 1 bonds suing the Swiss financial market regulator Finma after it wrote off their investments as part of the rescue while giving equity holders shares in UBS and thereby inverting the typical creditor hierarchy.
The case has shaken investor confidence in the Swiss finance sector and, while Raiffeisen Schweiz was selling senior unsecured rather than capital bonds, the bail-in nature of the instruments meant investor concerns over Finma's actions in bank resolution were still relevant.
The deal was billed as an important test of appetite for Swiss bank risk. As a high-quality cooperative banking group with a very different business model and credit story from its globally systemic neighbours UBS and Credit Suisse, bankers said Raiffeisen Schweiz was a good candidate to step up.
"It is the right Swiss name to reopen the market," said a banker away from the leads. "Although they are not very well established [in the euro market], they did some decent groundwork for their last trade and now, given the strength of their credit profile, are a good candidate to test appetite for Swiss paper."
After holding investor meetings on Monday, leads BNP Paribas, Credit Suisse, Deutsche Bank, Morgan Stanley, Raiffeisen Schweiz and UBS marketed the no-grow 5.5-year bail-in senior/senior non-preferred issue on Tuesday with initial price thoughts of mid-swaps plus 180bp area.
The spread was set at 170bp on more than €750m of demand and the final book stood above €900m, with more than 65 investors participating. The book was dominated by asset managers and fund managers who were allocated 82.2% of the deal, and accounts from the UK and Ireland took the lion's share with a 40% allocation and four of the five largest allocations, according to a lead banker.
Bankers at and away from the leads said the level of demand represented a respectable outcome.
"Given it was the first deal since Credit Suisse, it has gone very well," said a banker at one of the leads.
'Rocking spread'
Investors were said to have subjected the terms and conditions to especially intense scrutiny, while some passed on the trade entirely. Bankers said the fallout had clearly ramped up the difficulty of completing the deal.
"Senior non-preferred/bail-in senior from Switzerland? No one knows what bail-in now really means from a Swiss entity," said a second banker away from the deal.
The lead banker said some investors declined to participate due – at least in part – to legal language made prominent in the term sheet. The excerpt stipulates that under Swiss law the bonds are subject to "no creditor worse off" – or NCWO – protection, but investors purchasing the bonds agree to accept Finma measures in resolution as binding "even if it should turn out that their position would have been better in a bankruptcy of the issuer" and waive their right to bring any related legal claims against Finma or the issuer.
The same language featured in the prospectus of Raiffeisen Schweiz's previous issues, but leads flagged it in the latest deal's term sheet to be transparent, said the lead banker.
Despite those headwinds, the new issue attracted substantially higher demand than Raiffeisen Schweiz's previous euro bond.
The bank had previously tapped euros in October, pricing a €500m five-year bail-in senior in line with IPTs at 220bp on demand above €550m.
Bankers said the demand for the new deal partly reflected the pick-up Raiffeisen Schweiz paid versus more established issuers and the attractive outright spread for such highly rated paper. The deal is expected to be rated A/A+ (S&P/Fitch) – among the highest ratings in the euro SNP/holdco senior market.
"For that credit quality, 170bp is a rocking spread," said the second banker away from the deal.
Raiffeisen Schweiz's 5.23% November 2027 transaction was quoted bid at 124bp at Monday's open, according to Tradeweb – having briefly been as high as 305bp the day after Credit Suisse's rescue.
Bankers at the leads also cited as comparables a series of holdco senior or SNP bonds from more established euro issuers, including UBS's €1bn 0.25% February 2028s, which were quoted at 146bp.