Amount: £200m tier one capital
Issue/re-offer price: 100.00
Coupon: 6.202% until 19/12/19; 7.202% thereafter
Call option: at par from 19/12/19
Spread at re-offer: 110bp over the 8% June 2021 Gilt
Launched: Wednesday December 3
Joint books: HSBC, Lehman Brothers
Joint lead: KBC
HSBC — We went out in the 105bp area over Gilts, having roadshowed on the Monday and Friday of the previous week.
This was an opportunistic deal to prefund a deal that the borrower expects to call next year.
This is its inaugural deal in the sterling market and we went out with guidance of the 105bp area, so plus or minus 5bp from there. We built a book of around two-thirds at the 105bp re-offer. But to get the deal done at a decent size, there were a number of investors that saw 110bp as the threshold.
There was a wide discrepancy within the order book in how accounts value the paper and the issuer was very conscious of pricing at the right level.
There has been limited trading in the bonds since we broke syndicate yesterday (Wednesday). Most of the bonds went into the hands of investors that really wanted them. It was a very strong order book. That left a limited amount of bonds available on the break.
The level on the break yesterday was 107bp/102bp and the deal has held in line with the market since. The tightening was based on the finite quantity of bonds available and the quality of the placement.
Allocations were skewed towards accounts that had supported the transaction from the start.
Bonds are 103bp bid right now (Thursday), but we have seen no flow. Placement was to high quality accounts and there was little hot money allowed.
Lehman — We held a roadshow on the Monday and Friday of last week in London and Scotland.
We started a bookbuild seriously at the beginning of this week. We initially went out at 105bp-110bp area, and the book built steadily in that range. It came down to a decision about where to price.
The issuer was anxious to have a successful inaugural deal and we decided to go at 110bp over. We grew the books to £300m and priced yesterday (Wednesday) at 110bp over. The bonds immediately tightened a couple of basis points on the break.
The deal has been tightening as the market has been tightening. We have been in the 105bp-100bp area.
Some people that did not get bonds came in later and tried to pick them up. There was not room to do a longer dated deal, the borrower did not want to, and the market is in good shape. It was yesterday, anyway. That accounted for 3bp-4bp of the tightening, and the bond tightened 3bp-4bp against the market.
The order book came together at the wide end of the indicated range, and KBC was concerned about having a successful transaction.
The book was UK dominated although there was a decent bid out of the Benelux. KBC was the joint lead on the transaction and came in with some good interest from those domestic investors.
KBC was able to price at a competitive level compared to what it could achieve in euros and it tapped a new source of funding, at least on top of, if not through, euro levels.
When we priced the deal, swap spreads to Gilts were about 20bp, so this is 90bp-ish over swaps.
HSBC has a perpetual non-call 2015 deal at 90bp-80bp over Gilts. Credit Suisse has a perpetual non-call 2015 at 120bp-110bp over. There is also an HBOS perpetual, callable in 2010, at 90bp-80bp over.
Abbey’s 2018 is at 100bp-90bp and the Anglo Irish Bank is at 90bp-80bp over for a deal callable in 2011. The sterling curve is flat.
For us, 105bp over would have been the best case, but it was clear that for the deal to trade really well we would have to allow some more performance.
It is something that happens in the UK market. For the deal to trade well it has to offer good value. If anybody thinks it is slightly too tight, the big guys do not want to get involved and the deal might suffer.
Or you get lots of people wanting to come in. It is very rare to find a deal that trades around re-offer.
“…I can’t work out what is going on here. They announced the price talk and then relaxed it. And then the spread came back in after the break.
Price talk was 105bp over Gilts and the deal seemed to struggle. The leads widened to 10bp and got £200m done. The priced at 110bp, but then it came back in to 102bp.
This sounds like a classic case of the sterling market holding an issuer to ransom.”