MetLife printed a €500m seven year euro tranche at 108bp over mid-swaps, and a £500m 14 year sterling tranche at Gilts plus 155bp. Leads Barclays, Credit Suisse, Deutsche Bank and UBS squeezed the pricing by 7bp on the seven year and 10bp on the 14 year from initial price thoughts on the tranches.
Both tranches are GIC–backed — a form of senior funding for US insurance companies that is backed by a funding agreement and which has not been seen in Europe since 2007 — according to a banker on the deal.
Books on the euro tranche were €1.9bn with more than 100 orders, while the sterling tranche collected £2.5n from 75 accounts.
Bankers away from the deal said the tightening was quite aggressive, though MetLife is rated A3/A-/A-. "It looks cheap for the rating, but that has historically been the case for the funding agreement-backed sector. Insurance has traded flat or through banks over the last six months.
"I think they’ve paid a reasonable concession to top bank names or top insurance names. I think the long sterling is probably an outperformer on a relative size and price basis."
A banker at one of the leads said with a strong book and two deals that were only benchmark level they could afford to move the pricing. "Most investors stayed in the book; in fact the book actually grew once we went out with the final size and price of the deal."
Metlife’s last deal in euros was an €800m trade in May 2007 and it has not publicly raised sterling since November 2006. This meant pricing was not straightforward, said one syndicate lead.
"In sterling they have a couple of senior holding company transactions outstanding, a 2020 and a 2024 which were both around the Gilts plus 180bp-170bp bid-offer. Then looking at the Wells Fargo 17 year deal at Gilts plus 135bp, MetLife trades on the FA-backed side about 15bp–20bp back of Wells in the US. We worked between those two points for relative value."
On the euro side, the lead said the issuer’s 2017s were used, and were bid at around Z-spreads plus 103bp. "We thought for a two year extension plus a modest new issue premium 115bp area was a sensible start point." Then we just responded to having a book three or four times oversubscribed."
The deal comes as part of a focus on non-dollar funding from the US insurer, which printed its debut Kanagaroo bond — a A$500m September 2017 deal — on Wednesday.
One FIG banker said relative funding costs was a likely motivation. "They want the pricing to be as close to their dollar levels in the US as possible, and from an economic point of view that now makes sense."
International names including National Australia Bank and Wells Fargo have all done tightly priced senior deals in Europe in recent weeks.
Morgan Stanley returns
A name added to that list this week was Morgan Stanley, which brought a self-led €1bn bond at 275bp over mid-swaps that drew more than €5bn of orders on Monday. The deal, which was the US bank’s first euro benchmark since February 2011, was printed 15bp inside initial price thoughts.
Rival bankers said the spread looked very attractive, and the initial price was wide.
"They may have referenced some of Morgan Stanley’s dollar trading levels, which make the level in euros look attractive, but the first reference has to be the secondary curve in euros," said a source close to the deal. "They have a defined curve out to 2020 so investors had enough choice across different maturities to seek relative value."
The only other senior issue this week was a €600m debut from Carrefour Banque, the French bank that is majority owned by the supermarket chain. The deal closed with €6bn of orders, and 20bp tighter than initial price thoughts at 230bp over mid-swaps.
Those deals punctuated a week that has felt strangely quiet following the excitement of a bumper previous two weeks for senior issuance.
One FIG banker said the market was at a pivotal point on Thursday, with recent issues starting to underperform. The senior financials index was more than 10bp wider on the day.
"Part of the reason the peripheral senior deals got such big order books was a lot of investors had been caught underweight due to not expecting the politicians in Europe to come up with a resolution," said the banker.
"The market is pausing for reflection. Fundamentally it still feels fine, but issuers may have to pay bigger premiums next week if it’s a choppy market with new issues underperforming."
FIG bankers do not see a full pipeline looking forward. "It’s not a bumper pipeline for funding," said one head of FIG DCM. "Some banks in the UK are looking at LM, and others are looking at tier two. But there’s not much on the funding side."
One banker said a key reason for the lull was that the big issuers are very well funded.
"If you’ve done 90%–95% of your funding then you can be pretty relaxed and think about doing another benchmark at the end of the year if spreads are tight enough, or else just continue with some private placements."