Tranche 1: £400m subordinated capital
Maturity: 15 September 2066
Issue/re-offer price: 99.514
Call option: at par on 15 September 2016, three month Libor plus 161.5bp thereafter
Spread at re-offer: 97bp over the 4.75% September 2015 Gilt
Joint books: Barclays Capital, JP Morgan, Lehman Brothers, Morgan Stanley
Tranche 2: Eu950m subordinated capital
Maturity: 15 September 2066
Issue/re-offer price: 99.506
Coupon: 4.625% until 15 September 2016, three month Euribor plus 160bp thereafter
Call option: at par from 15 September 2016
Spread at re-offer: 62bp over mid-swaps, 85.6bp over the 4% July 2016 Bund
Joint books: Deutsche Bank, Goldman Sachs, Lehman Brothers, UBS
Launch date: Wednesday 6 September
Payment date: 15 September
Barclays (£) — This was a great deal to be involved with, the price was attractive to investors, but also to the issuer, which achieved its basket 'C' structure. And we priced the bond inside where we had suggested to the borrower.
We achieved a £3bn book for the £400m deal and it has moved 3bp tighter on the break The deal is a hybrid bond but we tried to price the issue as close to upper tier two as possible — the issuer is heavily regulated by the Office of Thrift in the US — it is like a financial issuer with a triple-A industrial bolted on.
The main comparables were GE outstanding paper, especially the 2037 lower tier two, which was trading at 80bp over.
The UK took 82% of the paper with 14% going to the rest of Europe. US accounts bought 4%. Fund managers bought 67%, banks took 14% with insurance and pension funds buying a combined 9%.
We had gone out with guidance of 100bp over Gilts and with the book as healthy as it was, we were able to come at 97bp over. It is trading at 93bp on the bid side — the deal is attractive in terms of price for all parties — it fulfills all its goals.
Lehman (£) — We announced the deal on Tuesday morning, with the issuer planning a benchmark dual tranche sterling and euro subordinated debenture. We were the sole structuring adviser and global coordinator.
Although GE had issued a lower tier two equivalent bond last year, which was rated Aa1/AAA, this was GE's inaugural upper tier two equivalent transaction and is rated Aa1/AA+.
We held a global investor call at midday on Tuesday, and during the afternoon GE held a number of one-to-one conference calls with individual investors. Following the global call, we went out with price guidance on both tranches.
The sterling guidance was set at the Gilts plus 100bp area. Investors viewed the subordinated debenture as broadly equivalent to bank upper tier two securities, giving many liquid securities in the sterling market to use as comparables.
In particular, we looked at the transactions from highly rated UK banks such as Lloyds' perp non-call 2016, which traded at Gilts plus 95bp, RBS' perp non-call 2016 — at 95bp and Barclays perp non-call 2017, which was trading at 94bp over. We also looked at outstanding GE paper to gauge relative value.
At the 100bp over Gilts area, the relative value for a Aa1/AA+ rated security was compelling and the book built strongly as soon as guidance was released. We closed the sterling book at 5pm on Tuesday, with over £3bn of orders.
By 8.00am on Wednesday, the trade details were refined to £400m and Gilts plus 97bp. No orders dropped at the tighter guidance and by early afternoon we had priced £400m at 97bp. The securities traded well in the secondary market, ending the day 3bp tighter at Gilts plus 94/92.
Goldman Sachs (Eu) — This has been in planning for several months and it was yesterday (Tuesday) morning when we announced the transaction to the market.
The deal is a basket 'C' transaction having optional deferrable cumulative interest payments.
This transaction felt like a bank capital upper tier two issue — it is certainly not as aggressive as a tier one or some or the corporate hybrid trades we have seen.
For comparisons we looked at the plethora of upper tier two trades in the secondary market, HBOS has a deal callable in 2015, which was trading at swaps plus 70bp, RBS has a 2014 that was at 58bp over and Santander's 2014 was at 66bp over.
We also looked at where we thought a theoretical Rabobank upper tier two bond might price, we worked out that that would probably price somewhere within 5bp of swaps plus 50bp, we then added a little to this.
GE is a triple-A issuer and while we were not marketing this as triple-A bank capital deal, it was not too difficult to attract investors to the GE name, it is such a well regarded issuer.
GE is a very frequent borrower in a number of markets, but it does not do that much in euros relative to its other markets — the outstanding euro curve trades tightly indeed, usually inside 20bp over and for some that does not offer an adequate yield pick-up. Therefore a decision to take subordinated euro paper was a no-brainer for many.
We went out with guidance of mid-60bp over swaps with many accounts saying they liked the look of the deal at between 60bp and 70bp over. We had a backstop of 3.5 times 10 year CDS and that took us to 70bp over.
At that level of the mid-60s we attracted 200 accounts and generated a book of Eu6bn. That naturally led to a complex allocation process with a number of investors submitting triple digit requests. The book was high quality and frankly it is a nice problem to have.
With such a level of support it was perfectly reasonable to price at 62bp over and it has tightened by 5bp in the secondary market. That will clearly lead to bankers that missed out on the trade saying it was too cheap.
It was clearly not a deal that should have come at 65bp over, but the issuer wanted the trade to perform, there have been recent deals that have come recently that have widened in the secondary sector, while GE was adamant that it wanted to see better secondary performance.
Could we have got Eu950m done at 60bp over? Yes of course, but 62bp gave us performance and allowed us to leave about 2bp on the table.
Some 29% of the bond sold to the UK, 20% went to Germany and Austria, 19% sold to the Benelux, 10% was distributed in France. 6% went to Italy, 5% to Switzerland, 4% each to Iberia and the US and the rest was sold to accounts elsewhere.
Lehman (Eu) — This was an extremely successful transaction that grabbed the full attention of the market and attracted exceptional demand. GECC has an outstanding lower tier two deal, issued last year, but this is their first transaction with upper tier two like features.
After announcing the deal on Tuesday morning and holding a midday conference call, we went out with price guidance of the mid-60s over mid-swaps in the early afternoon. Around two hours later we closed the books on the euro tranche with well over Eu6bn of orders — an amazing outcome.
Guidance was then refined to 62bp over mid-swaps on Wednesday morning and we priced Eu950m in the afternoon.
The structure closely resembles that of bank upper tier two capital and also benefits from some attractive features like a final maturity of 60 years and limited coupon deferability.
Furthermore, both agencies rate the structure one notch below senior, versus one and two notches respectively for most existing bank upper tier two transactions.
The whole package proved extremely attractive for investors — the rarity of the issuer in subordinated format, the highest ratings to date for this level of subordination, the quality of the issuer, and a very attractive structure.
Investors seeking comparables looked at higher quality upper tier two bank paper.
The euro upper tier two bank capital market is not as liquid as in sterling, but there are a few high quality examples that investors referenced. More specifically, RBS' 2049 callable in 2014 was trading in the high 50bp over mid-swaps and HBOS' 2049, callable in 2015 was trading around 70bp over mid-swaps.
Investors also referenced 10 year senior GECC paper trading around 20bp over Euribor and the 2035 GECC euro lower tier two deal trading in the mid-30bp to mid-swaps.
Constructing relative value for most investors consisted of looking at senior to subordinated relationships for top quality European banks.
The quality of the order book is unprecedented — we rarely see this level of diversity, quality and magnitude. Moreover with over Eu6bn in orders in the euro tranche alone we had the most complete list of real-money investors across Europe.
Since launch, the deal has tightened by 3bp-4bp, with several investors trying to top up their holdings.
"...the sterling deal seemed to go well and is well known among sterling investors so this paper offering extra yield flew. I understand that less of this sold to traditional sterling houses than most other sterling bonds. A good transaction."
"...this was a breathtaking trade, it is really more of an upper tier two deal than a corporate hybrid and the order book, by all accounts, looks like a compendium of investors.
If you look at where a lot of the upper tier two deals trade, this looks cheap but they had a lot to do and it is undoubtedly a blowout."
"...a good deal — a great name to do this with and it just shows, along with the hybrid for Siemens, just how much cash there is out there."