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Financial institutions bond deals of the year

MADRID, SPAIN: CaixaForum Madrid is a museum and cultural center

Market participants tried desperately to put Covid-19 behind them in 2021, but another year was defined by the pandemic. Though vaccination programmes reduced the number of national lockdowns, the resulting economic rebound brought with it a new and scary risk: the prospect that central banks could start shrinking, rather than expanding, their balance sheets. Fears over the delayed impact of the coronavirus carnage triggered more frequent bouts of volatility in international markets, which became increasingly violent as the year rolled on. In such a tricky year of transition, GlobalCapital wanted to reward those bond deals that achieved standout results for FIG issuers — in terms of pricing, innovation, execution, and timing. The winners are presented here

Additional Tier One Deal of the Year

CaixaBank

€750m 3.625% perpetual non-call September 2028/March 2029 additional tier one

Barclays, BNP Paribas, CaixaBank, Goldman Sachs, HSBC

It is hard to imagine how CaixaBank could have timed the sale of its additional tier one any more perfectly in 2021. With outright yields falling lower over the summer, the Spanish bank seized its opportunity in early September to bring a perpetual non-call 7.5 year to investors.

The result was an astonishing success. Investors piled €3.5bn of orders into the €750m trade, allowing the lead managers to tighten pricing from 4.125% and land at 3.625%. Not only was the final coupon level some 200bp below where CaixaBank had printed an AT1 a year earlier, it also set a new record low for peripheral European banks in the asset class.

The trade crystallised an improved reputation for CaixaBank in the Spanish credit market. It spoke volumes that national champion Banco Santander bagged an AT1 of its own a couple of weeks later, landing on the same 3.625% coupon rate — imitation is the sincerest form of flattery.


Insurance Bond Deal of the Year

Just Group

£325m 5% perpetual non-call September 2031 sustainability restricted tier one

HSBC, JP Morgan, Morgan Stanley

Just Group has not had an easy time in the market in the last few years, amid questions over the risks stemming from its property exposures. But the UK insurer has recently been making progress in shoring up its balance sheet, which opened up a golden opportunity to tap the restricted tier one market in September.

The resulting deal showed how far Just Group has come, as it was able to print a £325m perpetual non-call 10 year at 5% — two percentage points lower than where it had priced a tier two a year earlier. The transaction was paired with a liability management exercise, which meant the insurer was able to rid itself of a much more expensive £300m 9.375% perpetual non-call April 2024 RT1, issued in 2019.

In case the market didn’t already have enough to focus on, Just Group also broke new ground in becoming the first insurer to issue an RT1 with a sustainable use of proceeds, attracting several ESG funds into the huge £3.2bn order book.


Tier Two Deal of the Year

Groupe BPCE

€900m 1.5% January 2042 non-call 2026 RAC tier two

€850m 2.125% October 2046 non-call 2031 RAC tier two

Natixis

BPCE brought innovation to an increasingly homogenous market for bank capital when it unveiled a new style of tier two in September. The French issuer is one of the only European lenders that does not sell additional tier ones (AT1s), because of its co-operative structure. But it still wanted to issue hybrid debt as a way of improving its risk-adjusted capital (RAC) ratio for S&P Global Ratings.

The challenge for BPCE and Natixis was to try to convince the market that the new transaction — which carried a write-down trigger as well a longer maturity structure than a normal tier two — was less risky than it seemed. The outcome was a ringing endorsement for the format. Investors accepted pricing that was much closer to a standard tier two than an AT1, meaning the issuer hardly had to pay up to achieve its capital aims. Accounts ended up pledging close to €5bn for the two tranches, which were nearly three times subscribed.


Senior Deal of the Year

Rabobank

€750m 0.625% February 2033 non-preferred senior

BNP Paribas, HSBC, JP Morgan, Rabobank, UBS

It would be remiss to say that Rabobank has any problems navigating the capital markets. But as a very low spread borrower with a small funding plan, the Dutch bank must be particularly mindful about which windows it chooses to access. The issuer nailed that brief in February with its 12 year non-preferred senior deal, which can only be said to have been timed to perfection.

Rabobank paid very close attention to a spike in long end swap rates in the middle of the month, which gave it an opportunity to offer a little extra yield to investors without having lump on any more basis points in spread.

It was twice covered for its €750m print, despite pricing at just 52bp over mid-swaps — the tightest ever spread for a 12 year non-preferred senior bond. Such a transaction would not have been possible any later in the year, as credit curves steepened amid further rates volatility.

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Tyler Davies
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