STRUCTURED MTN MARKET GETS CONGESTED
Proving that the private placement and structured MTN markets are not just for highly rated and long established borrowers, 2006 saw a wider variety of names than ever access the cheap and diverse funding opportunities available. Nick Jacob talks to a group of issuers about the challenges they faced amid tougher market conditions and fierce competition for trades.
|The following people took part in the roundtable:||John Eldredge, general manager, Emirates Bank International|
Roger Schumann, MTN desk manager,
David Stefansson, funding manager, Kaupthing Bank
|Wafi Saleh, head of structured funding/EMTNs, Banesto||Miguel Sánchez Vaquero, head of funding, Banesto||Mark Fields, funding manager, Irish Life & Permanent|
How long have you been active in the structured MTN market and how did your activity change in 2006?
Miguel Sánchez Vaquero and Wafi Saleh, Banesto: Our present programme was set up in February 2005 to meet the needs of our own clients but once we had created this platform we realised we could decide to open it to third-party dealers and create a new funding source for the bank. From almost nothing in 2005 we issued over Eu1.5bn in structured notes in 2006. We issued around Eu3bn in vanilla format.
David Stefansson, Kaupthing: We got a lot of experience issuing in the structured market in 2005, but we started to put more emphasis on it last year. Our issues amounted to Eu900m compared with Eu300m a year earlier.
John Eldredge, Emirates Bank International: In the last year we have started to issue from reverse inquiries and in small amounts in a wide range of currencies. All of it is swapped back to US dollar floating rate. We've got our business fairly automated to issue off the programme.
Mark Fields, Irish Life & Permanent: We've been particularly active in this area since 2004. Last year we issued 55 structured MTNs totalling close to Eu1bn which is very similar to 2005 volumes. We have completed 90 private deals totalling Eu2bn.
Roger Schumann, SNS Bank: SNS Bank set up the Debt Issuance programme in the late 1990s. At an early stage we also started issuing structured notes when we saw demand for interest rate structures for single-A issuers.
From there we have seen a whole spectrum of structures on the interest-linked side as well as in the equity and commodity-linked segment. The MTN market has enabled SNS Bank to execute its funding mix through the combination of plain vanilla and structured notes.
Did the MTN market live up to your expectations last year?
Banesto: The EuroMTN programme has been a big success. In terms of volume it exceeded our expectations — we initially estimated we would raise Eu600m from structured notes, and we did nearly three times that.
Kaupthing: This has been a learning curve, but our knowledge has increased. The name of the game for us last year was diversification in our funding.
Emirates Bank International: Yes, it lived up to expectations. We're actively quoting across the yield curve from one to seven years, and we're doing that on a proactive basis. We've got a number of dealers that support us.
SNS: For SNS Bank, the ratio between plain vanilla and structured issuance is currently around 70% to 30%. Before the prospectus directive, our structured issuance accounted for 40% of all MTN trades.
How has the mix of your funding changed in the last year?
Kaupthing: The public/private mix is almost unchanged, but the structured part of our funding has doubled.
Emirates Bank International: We've got 17% of the total outstandings under the programme as private placements, that's $550m. The economics are better than for public issues.
Irish Life & Permanent: Our success in private placements has lessened our reliance on the public markets which in turn has allowed us to achieve excellent pricing as a relatively rare issuer.
Last year we issued a Eu750m five year floating rate note at the tightest ever pricing achieved by a single-A issuer.
SNS Bank: Besides the funding activities under the Debt Issuance programme, SNS Bank also uses its Hermes securitisation programme and an Australian dollar MTN/STN programme. In the money market, SNS Bank is active with its CP programmes.
What challenges did last year's market present to you?
Banesto: There has been a lot of diversification from interest rates to equities and hybrids and these complex trades take more resources. Our first challenge was to be recognised as a flexible and reliable issuer in this highly competitive market. We have been very flexible in terms of structure types, asset class, underlying, maturities and callability. For instance we'll do calls down to one day.
Kaupthing: Like other Icelandic banks we saw some volatility, which might have presented a challenge if we hadn't already started diversifying our funding sources. But having access to so many different markets — including US 144a, Samurai and Kangaroo as well as covered bonds — has made it easier.
Irish Life & Permanent: We have been aware that general MTN volumes have been down year-on-year, yet we seem to have come through unscathed.
SNS Bank: Due to the acquisition of Bouwfonds Property Finance the funding needs for SNS Bank increased during the last quarter of 2006 and we expanded our activities under all our programmes.
How much help has the dealer community been in introducing you to new markets, investors and products?
Banesto: Since we are new to the market, our dealers have done a great job introducing us to final investors which may not have heard of Banesto as an issuer of structured notes before. They have taken us global in that market. The combination of our flexibility and committed approach added to the dealers' excellent work was essential for us to go global.
Kaupthing: The dealer community has been very helpful introducing us to new markets and new investors and drawing attention to the offering we have.
Irish Life & Permanent: We have completed transactions with over 20 counterparties in each of the last two years. Last year we were particularly pleased to develop relationships with BBVA and Santander allowing us to reach a previously untapped investor base in Iberia.
Emirates Bank International: Our dealers are very good. We've got a core group of banks on our panel. Of course they would all like to do the public issues but a number are active with reverse inquiries. We don't discourage other dealers from bringing inquiries.
SNS Bank: Our long standing good relationship with the MTN dealer community has been instrumental for SNS Bank.
Are you finding greater competition from your peers for structured trades?
Banesto: We are the new competitor for the others — now they have to compete with us!
Kaupthing: There is definitely greater competition in the structured market compared with 2005. On the structured side we decided to have more flexibility so we decreased our minimum size and redemption requirements, which has proved to be very well received.
Irish Life & Permanent: The structured trade space has certainly become more congested and we expect this trend to continue into 2007. Thus far this has not impacted us directly in terms of either our strategy or our funding levels.
What challenges do you expect in 2007 and how are you preparing your funding strategy for the year?
Banesto: We would like to see the structured note side have more weight. It is a very efficient tool for funding purposes and now we have the expertise and machinery in place to do it. We want to move from a 70%/30% split in favour of vanilla to closer to 50%/50% or more on structured notes. We would like to explore the market for extendible notes in the US, US MTNs, small denominations and we will also look at the structured schuldschein market.
Kaupthing: We want to have some presence in many different markets without creating an oversupply in any one of them. We are building a curve in the US, and will do the same in Japan.
Emirates Bank International: We see the process continuing. We've been very pleased with the growth of the private placement business off the back of our public issues in 2006 and we'll look to get quotes across the curve on a regular basis.
Irish Life & Permanent: 2007 presents another challenging year for us on the funding side and diversification of both our short and long term funding sources will be key to this strategy. Again, we expect the MTN market to play a significant role for us and we expect to achieve Eu2bn-Eu3bn through a combination of public and private issuance.
SNS: In case volumes in the private placement market show a further decline in the coming year, SNS Bank has a variety of options. Funding activities can be increased through the mix of tools that we have at our disposal.