Aviva, the insurance company that wowed bond investors with jumbo hybrid capital deals in 2001 and 2003, priced a dual currency innovative tier one capital issue totalling £990m ? only the fourth tier one deal from a UK insurer.
Meanwhile, Royal Bank of Scotland is today (Friday) expected to price an Eu1.25bn issue that is thought to be the largest ever retail targetted bond.
Barclays, meanwhile, caused an outburst of complaints, disbelief ? and admiration ? among investment bankers specialising in financial institutions by announcing that it planned to launch a core tier one deal targetted at institutional investors ? the Holy Grail of bank capital structuring.
Core tier one capital issues are nearly always sold to retail investors because regulators require them to have perpetual maturities, which institutions do not like.
Innovative tier one capital, in which step-up coupons can be used to create artificial maturities, appeals more to institutional buyers.
Institutional investors have a tide of pent-up demand for higher yielding financial institution paper, because of the shortage of institutionally targetted upper tier two and tier one capital issues from banks and insurance companies this year.
Tier one issues have largely gone into the retail market, in search of the cheap funding that is sometimes available by selling bonds with coupons linked to constant maturity swaps.
The success of this week's fixed rate issues ? in both the institutional and retail markets ? is a reaction to the dearth of paper of that kind.
And spreads are almost too tight to resist. Aviva priced its tier one deal a meagre 10bp behind its outstanding upper tier two bond.
RBS yesterday (Thursday) closed the book for its retail targeted perpetual non-call five deal with Eu1.4bn of orders. The bonds will be priced today (Friday) at par, with a coupon of 5.5%, which is believed to be the lowest in the tier one asset class.
The size will be between Eu1.1bn and Eu1.25bn, though the larger size looks likely. With fees of 2%, bookrunners ABN Amro, BNP Paribas, RBS and UBS will share a Eu25m payday, less any discounts paid to intermediaries.
RBS has announced that it will be calling an outstanding Eu750m preference share deal early next year, which helped stimulate demand.
Eu6bn of demand for Aviva
In 2001, when it was called CGNU, Aviva became one of the first insurance companies to issue hybrid capital.
Last year, in the light of the FSA's CP 190 and CP 195 rulings on insurance capital, Aviva became one of the first insurance companies to issue upper tier two.
This week it became the first insurer to have tier one as well as lower and upper tier two deals outstanding, by pricing a £500m perpetual non-call 2020 deal at 117bp over Gilts, and a Eu700m perpetual non-call 2014 deal at 80bp over mid-swaps.
ABN Amro, Barclays Capital, Goldman Sachs and Lehman Brothers were bookrunners.
Each of the tranches tightened 2bp in the aftermarket, before softening back 1bp as accounts that had been cut back flipped out of their meagre allocations.
About 120 investors placed £2bn of orders for the sterling tranche, while 250 put in Eu3.2bn of orders for euro.
Although it was clear by Wednesday that the deal would be a success, the leads did not tell the market how well the deal was going initially, for fear it might run out of control. On Wednesday afternoon, however, they updated investors to chivvy them into decisions.
?We did participate because the pricing was acceptable versus the other euro tier ones and given the strong market conditions,? said a fund manager at a major institutional investor in Europe.
?In sterling there is hardly any premium; in euros it is acceptable ? not astonishing, but acceptable.?
Lehman Brothers, which structured the Aviva deal, as well as the insurer's two previous subordinated issues, slightly adjusted the structure used by fellow UK insurers Friends Provident and Prudential.
This week's offering ranks pari passu with Aviva's most senior non-cumulative preference shares and junior to its existing upper tier two and lower tier two bonds.
Aviva can defer coupon payments when it wants to, and in the event that the group, or part of it, breaches regulatory capital guidelines, it has the option to replace the securities ? called direct capital instruments ? with perpetual, non-cumulative preference shares.
While Friends Provident and Prudential each had one or other of these features, neither had both.
The preference share write-down means the bonds have principal loss absorption, which is an EU requirement for tier one capital.
Deferred coupons would be settled through an alternative coupon satisfaction mechanism, whereby Aviva would issue shares and pay off the coupons. Fitch rated the offering A-, while Moody's put it at A3 with a negative outlook.
Aviva has Eu450m of preference shares outstanding.
