Rating: A3/A- (Moody's/Fitch)
Amount: £120m lower tier two capital
Maturity: 8 July 2016
Issue/re-offer price: 99.463
Coupon: 5.375% until 8 July 2011; thereafter three month Libor plus 100.5bp
Call option: at par from 8 July 2011
Spread at re-offer: 90bp over the March 2012 Gilt
Launch date: 26 May
Payment date: 8 June
Lead mgrs: Barclays Capital, Royal Bank of Scotland
Barclays Capital — We were mandated by the issuer to lead manage a £100m area lower tier two transaction. We have seen interest at the short end in the lower tier two product, and 10 year non-call five transactions have been going very well.
We went out with a 10 year non-call five area structured deal, giving us the flexibility to extend if needed. The issuer conducted a three day roadshow in London and Scotland and the feedback was very positive on the credit.
The main question was to determine what the relative value was against outstandings.
Principality had an outstanding PIBS issue which we led and we were aware from executing it that the name was well liked by UK investors. This £60m perpetual non-call 2020 transaction was bid at 143bp. We also looked at the Chelsea Building Society December 2017 non-call 2012 which was bid at 85bp while the Portman Building Society 2020 non-call 2015 was bid at 90bp.
We therefore released guidance at 90bp to 95bp over Gilts. While the market had seen some volatility, sentiment was robust within the building society sector and the sterling market in general.
We got a strong response from investors and the order book built over £400m. We closed them at the end of last Thursday.
The maximum the issuer could do was £120m which we were able to execute at the tight end of guidance. A couple of accounts dropped out at 90bp but the majority of orders were good at that level.
The order book was almost exclusively UK accounts with the traditional buyers of subordinated debt well represented.