Rating: Baa2/BBB
Amount: Eu150m tier one capital
Maturity: perpetual
Issue price: 100.00
Coupon: 7.133% until 31/07/14; thereafter 12 month Euribor plus
440bp
Call option: at par from 31/07/04
Spread at re-offer: 309.5bp over the 3.75% July 2013 Bund
Launched: Friday July 25
Joint books: Deutsche Bank, HypoVereinsbank
Note: silent partnership agreement between issuer and Deutsche
Apotheker-und Aerztebank eG
Bookrunners' comments:
Deutsche - Before we could launch this transaction, we had to get a couple of things out of the way. First was Dapo's AGM in early July and board approval for the transaction. Then, once that was in place, the prospectus had to be approved by the Frankfurt stock exchange.
We then began marketing the transaction at the beginning of last week. Although the deal took a day or so to get going - as people needed to look at the structure and terms - demand then came in strongly. The book built rapidly and we closed it on the Thursday afternoon at Eu210m.
We then launched the deal on Friday morning and priced it at around lunchtime.
The initial spread guidance had been mid-swaps plus 300bp, but we quickly moved to a 290bp spread. We could have priced the issue even tighter, but given that investors were having their allocations cut sharply we wanted to leave something on the table for them to ensure that they were pleased with the deal.
The main comparable was the A3/BBB+ Eurohypo issue. That was trading at around 280bp/270bp when we priced Dapo. The pick-up Dapo offered accounted for the difference in liquidity between the two issues, the lower ratings of Baa2/BBB and the year longer maturity - the curve between Eurohypo's 2013 maturity and Dapo's 2014 is worth about 10bp.
Dapo is trading (Thursday) at 295bp/285bp and Eurohypo at 275bp/265bp.
The participants were mainly German, although we did see some demand from the UK, Austria and Spain. We had to close the book quickly because of the strength of interest in the issue and had it been a larger issue we would probably have seen more international participation.
HypoVereinsbank - This was a modestly sized transaction, but we ended up heavily oversubscribed and are pleased with how it went.
Although there had been talk of this deal before last week, under German regulations we could not begin hard marketing of the transaction until the beginning of last week. However, when we went out with the terms it soon became clear that the issue would be a success.
We went out with guidance of 300bp over mid-swaps and were able to price the deal at 290bp over. The main comparable was Eurohypo's issue, which was trading at around 270bp over.
Given the smaller size of this Dapo deal, the lower rating and the longer maturity, we felt that a 15bp-20bp differential between the two issues would be right. There were also deals such as SNS and RZB around, but they were not good comparables because German banks still have to pay a premium.
We had hoped that the transaction would be rated Baa1 by Moody's, because they have previously applied a two notch rating differential between this structure and senior debt, but the rating agency has changed its policy and gave a three notch differential, resulting in a Baa2 rating.
However, this did not cause a problem in marketing as we had always been cautious and factored in the possibility of that. We expect that Moody's will now use the three notch differential more often.
The strongest demand came from Germany and we sold almost 80% domestically. Interest was particularly high from institutions close to Dapo. Because of the high level of oversubscription, allocations were cut severely.
