Maturity: 4 March 2020
Issue price: 100.00
Coupon: 5% until 4 March 2006; thereafter 100% x 10 year CMS; minimum coupon 1.75%; maximum coupon 5 x (10 year CMS minus two year CMS)
Launch date: Friday 11 February
Payment date: 4 March
Sole mgr: Deutsche Bank
The transaction was driven by a few big investors but was actually broadly distributed within Europe, mainly to private banks and insurance companies.
KfW and EIB have used this kind of structure before but it is a first for Austria, indeed for any sovereign, and it has been successful.
The structure is appealing for investors. First it has an interesting coupon in year one and the return for the remainder of the bond is also attractive. Obviously investors have a certain view on how steep the curve is going to become because the steepness of the curve determines how much the coupon is capped.
The deal underlines the trend to look at more structured and more tailor made issues, which give investors a certain yield pick-up for a well defined risk in a well defined structured bond.
We have seen a lot of activity in CMS steepener notes over the past few weeks from issuers such as the EIB, Deutsche Bank, RBS, Irish Life and Unicredito but this structure is slightly different as the steepener element is in the cap instead of in the coupon — we call it an enhanced CMS steepener note.
The deal has been very successful. Austria is probably the most innovative sovereign borrower in Europe.