Guarantor: Land Baden-Württemberg
Rating: Aaa/AA+
Amount: $1.5bn (increased from $1bn)
Maturity: 15 September 2010
Issue/re-offer price: 99.822
Coupon: 4.25%
Spread at re-offer: 37bp over the 3.625% June 2010 UST
Launch date: Tuesday 12 July
Payment date: 20 July
Joint books: Citigroup, Dresdner Kleinwort Wasserstein, HSBC
Borrower's comment:
This is L-Bank's inaugural global bond and we are pleased to have been able to do that as a Schedule B–Filer, which is the exemption for sovereign borrowers.
By issuing in global format, we have been able to access an additional investor base in the US. The US distribution of over 40% proves we were right to have taken this approach. It also clearly confirms to the market L-Bank's status as a quasi-sovereign/agency issuer, because only issuers in this category can file under Schedule B. By obtaining this exemption — even though we carry the guarantee from the Federal State of Baden-Württemberg rather than from the Bund — we have the same classification as KfW in the SEC's SIC-scheme and are recognised as having the same legal background.
Our last two dollar deals issued in 2003 and 2004 were priced at Libor flat and minus 1bp/2bp respectively, while the new bond is priced at Libor less 7bp, so there has been a significant improvement in our funding level. This is not only because of the global format but because of additional marketing activities worldwide. Also, the market is increasingly appreciating the credit quality of L-Bank.
The two previous transactions have tightened significantly to trade at around Libor minus 12bp/14bp, so the new issue clearly offers both value to the market and performance potential for the future.
We have carried out extensive investor work worldwide and, with distribution of around 46% in Asia, you can see where the additional focus of our investor work has been.
European investors accounted for a further 13%.
By investor type, we have fund managers taking 38%, central banks 35%, banks 14%, pension funds and insurance companies 7%, hedge funds 3%, and corporates and others 3%.
The total book size was just shy of $1.7bn, which allowed us to increase the issue size first to $1.25bn and then to $1.5bn.
We identified this week as an ideal slot to go ahead with the transaction before the summer break. The week was clear of any numbers — with the non-farm payrolls out of the way and with no new supply announced for this week, we decided that it could be a good window for us to go ahead.
We had a very good team of lead managers in Citigroup, DrKW and HSBC — they did a tremendous job for us in preparing the transaction and then executing the deal.
As we wanted to support their efforts in marketing the trade, we decided to increase the deal size to $1.25bn, and then $1.5bn, just to be able to allocate all the high-quality accounts we had in the book.
We are extremely pleased with the commitment shown by investors. It demonstrates that accounts are familiar with our name and see the value in our name.
The pricing was more than fair at 37bp over Treasuries, and the deal is now a little tighter, which is exactly what one would want, especially as an inaugural trade.
Bookrunners' comment:
The success of this inaugural dollar global bond is very much due to the responsible approach taken by the borrower. Having prepared the groundwork very well in the past with a series of strategic Eurodollar benchmarks, L-Bank had already created a curve.
Investors knew the name, and the bonds were liquid and had performed very well. Therefore, when they came to do this issue, they already had a very good track record, with several $1bn trades outstanding, all trading 10bp-15bp through swaps.
Priced at the equivalent of Libor less 7bp, this issue looked excellent value versus L-Bank's curve, but it also provided good historical funding for the borrower given that its last issue, the 2009, was re-offered at Libor less 2bp.
The success of this issue should be a lesson to every borrower. Those who bring responsible transactions that are well priced reap the benefits the next time they come to the market.
Also, the fact that L-Bank has undertaken extensive investor work in the US has paid off handsomely. The name was not particularly well known in the US, as it had not issued in global format before. To have sold 41% of a $1.5bn issue into that region is a fantastic result.
L-Bank is not the easiest story — you have to go through the "is it a landesbank?" discussion, and you have to go through the guarantee structure and explain how the two entities split up in the past. We have done that in Europe and Asia over the years, but it was a new story for the US investor base, and I have to say the borrower has done a fantastic job on the road.
The book size was ultimately $1.7bn, which allowed us to increase the deal first to $1.25bn and then to $1.5bn, and to price at the tight end of guidance at 37bp over Treasuries.
We had over 50 accounts in the transaction, a lot of them new accounts to the L-Bank name because of the US distribution. And the bookbuilding process was very quick. We were aiming for pricing by Thursday but were able to accelerate to Tuesday afternoon.
With this transaction, L-Bank has consolidated its investor base in Eurodollars, which was essentially the central banks, Asian accounts and European retail, and added a new dimension with the US accounts.
We believe that the issue will perform because the name has a strong European retail following. This deal will be taken off the buylists going forward and will tighten as a result.
Market appraisal:
"...this has gone really well, increased from $1bn to $1.25bn and then to $1.5bn.
The pricing was OK at Libor minus 7bp — it looks good to secondary issues trading in the region of 13bp-14bp through Libor. Historically minus 7bp is quite tight for L-Bank, which previously funded in the 1bp-2bp through area, but it compares very well to anything else available — this week's issue for Spain for example, which is Libor minus 26bp. For an investor looking to put money to work this week in dollars, L-Bank is one of the cheaper products out there.
It is the issuer's first global bond and they have obviously benefited from being able to access the US investor base, which I understand they have done very successfully."
"...the pricing is very much in line with where we would have priced the issue at around Libor less 7bp.
L-Bank is one of the rare borrowers these days that come in global format and pay single digits through Libor. Scandinavian global issuers are all pricing in double digits through so there are very few borrowers who can offer than kind of spread pick-up."
"...definitely the best dollar deal this week. L-Bank has achieved its best ever pricing in the dollar market, so a good deal for them. It also offered an attractive pick-up over pretty much everything else of this quality, so a good deal for investors too. And since it was the borrower's inaugural dollar bond and the spread over agencies was attractive, L-Bank has successfully broadened its investor base into the US."
"...a lot of people said this pricing was cheap, but I would call it fair value. L-Bank is a new name in the global dollar market and it seems to have gone down very well, achieving an oversubscribed book.
I am not convinced that the US investors will be long-term holders because the name is not at all well known in that market. It will need two or three more deals before it establishes a strong buy-and-hold US franchise.
We were a co-leads with $15m bonds, which we sold to European accounts."