Rating: A3/A-
Amount: Eu500m
Maturity: October 23, 2006
Issue/re-offer price: 99.912
Coupon: three month Euribor plus 25bp
Spread at re-offer: Euribor plus 28bp
Launched: Tuesday October 14
Joint books: Citigroup, HVB
Bookrunner's comment:
Citigroup - This is HVB's first senior unsecured issue in a couple of years. The group has recently had some positive credit news, having spun off its commercial real estate business and made some asset disposals of bank subsidiaries at good prices.
The restructuring programme is therefore well underway and people perceive that the worst is over for the credit.
We had more than 70 investors in the book and the deal came together quickly in just a few hours. We were around two times oversubscribed and stopped taking orders at that point. We would have liked to do more but unfortunately the borrower would not increase the deal from Eu500m.
We were successful in terms of achieving the borrower's goals of widespread distribution outside Germany. France and the UK were the biggest players with 17% each, Scandinavia took 10% and Greece 10%. In the end Germany took only 20% of the issue.
The issue was priced at 28bp over at re-offer with the borrower's shorter dated euro transactions trading at around 23bp-21bp when we announced the new bond. It is trading very well in the secondary market, and is bid at 25bp over this afternoon (Thursday).
HVB - This went extremely well and we were sold out after 55 minutes. We could even have sold two times the amount we raised.The total order book included 80 different accounts and we were able to achieve good geographical diversification. Germany took 40% of the paper, France 22%, the UK 12% and the rest was split between Italy, Portugal, Spain and other European countries.
We had very strong demand from banks, and the largest percentage was sold to those accounts, but we also had asset managers and insurance companies involved.
This was an opportunistic transaction, in that it was launched in response to demand, but we were not aggressive in our approach to pricing. This was HVB's first senior unsecured appearance in the market in over a year and it was important that it went well.
We had a July 2005 deal outstanding that was trading at 23bp-24bp over, which is bid only, so the new re-offer margin of 28bp over offers a fair pick-up for the year longer maturity.
The bond quickly performed extremely well in the secondary market, tightening from 28bp over to 26bp bid, with no offer.
The success of this transaction is another milestone along HVB's road to recovery and is yet another piece of positive news regarding the group.
Market appraisal:
"...clearly a successful deal. There is a big story to tell about this credit and it was well received by the market at the level of 28bp."
"...I heard a rumour that this was as much as two and a half times oversubscribed. It certainly went well.
Demand can be seen from the fact that it is trading at three month Euribor plus 26.5bp now. Investors have been after more generous yielding names and HVB is attractive.
It has managed its asset disposals well and all banks in the German market have performed in the short term. We only got a small allocation but the orders came from banks out of Germany."
